Using your Super to Purchase an Investment Property
Self Managed Superannuation Funds (we will call them SMSFs) can now borrow money to purchase residential or commercial real estate. A SMSF investor can have just as much choice and control over investment properties purchased within a SMSF as they would in their own name.
Until recently this had not been possible because of restrictions on superannuation funds borrowing and using the super assets as security for loans. The Superannuation Industry Supervision Act (SIS Act) was amended in September 2007 to allow SMSF’s to borrow money so long as a special structure is used.
Many Australians have significant money in superannuation and more and more are establishing their own Self Managed Super Funds.
In fact the Australian Taxation Office reported that over 31,000 new SMSF’s were formed in the month of June 2008 alone, with a further 20,000 to 30,000 being formed each month on a consistent basis.
The best part about the changes is that you now may be able to include real estate in your super fund’s investment portfolio by setting up your own SMSF.
There is no minimum balance set by law to setup a SMSF, however you should seek advice from Prowealth Financial Planning before making a decison about your super.
How does it work?
Currently, your employer pays 9% of your salary into a superfund (in this example, we are using AMP as the superfund). The super fund makes investment decisions as to how to invest the money. You have little say, other than perhaps a ‘high growth’, ‘low risk’ or similar tick box on your super statement. You cannot specify what shares to buy, which managed fund to invest in or which property to buy as an advisor from the super fund handles everything. Your spouse is often in a different super fund to you, limiting the amount that could be invested into an asset class. Most super funds also charge fees to manage your investments regardless of the performance of it.
However you can choose to instead setup a SMSF.
You set-up this structure with your accountant. You, (and your spouse if you have one) instruct your current super fund to ‘rollover’ the balance of your money from your existing fund to your SMSF’s new bank account. You also instruct your employers to now pay 9% of your salary into your SMSF.
You now have a combined super balance that you can choose to invest in virtually any asset class you like providing it’s within the SIS Act rules. You can decide to buy specific shares, invest in specific managed funds, and buy specific property, even art and antiques.
The key is you can now choose how your super is invested, not an advisor.
In essence, a Self Managed Super Fund allows you to take control of the decision making process by allowing you to decide on how and where you will invest the money for the benefit of all super fund members (usually you and/or spouse) at retirement.
To find out if a SMSF is right for you, download the forms below and contact us on 1800 13 22 64 to make an appointment with an advisor.