self-employed

"Erika has worked hard to forge good relationships with the representatives of the lenders, allowing her to smooth over any potential difficulties with a loan application before pen is put to paper. She makes certain that each application is tailored in a way that makes it the most attractive for any specific lender, which gives it the best chance of going through without a hitch. In the event of the inevitable hiccups such as solicitors, valuers or credit departments dragging their feet, Erika immediately jumps in to sort out the problem straight away." David and Nicole

Buying property in a Super Fund

What is an SMSF [Self-Managed Superannuation Fund]?

SMSFs are a unique way of saving for your retirement. They can be a great way for you to take control of your future retirement income. But, they’re not for everyone and you need to carefully consider if you’re prepared, and able, to put in the time and take on the responsibility and obligations that are involved in responsibly managing an SMSF.

Basically an SMSF is a trust. A trust is an arrangement where the trustee [a person or company] holds assets [trust property] for the beneficiaries [the trust members].

The ATO [Australian Tax Office] is the regulator of SMSFs and is responsible for helping to protect retirement income by ensuring that SMSFs follow the rules and legislation outlined in the super and tax legislation.

ASIC’s responsibility is to ensure that corporate trustees [either for the super fund or Bare/Property Trust] are properly incorporated, have the appropriate directors and lodge their annual reports.

How does borrowing in a super fund work?

  • An SMSF Loan is technically called a Limited Recourse Borrowing Arrangement [LRBR]. Throughout this website we’ll refer to it as a Super Fund Loan.
  • A Super Fund Loan involves an SMSF taking out a loan from a third party lender [or from a related party such as a member of the fund].
  • A Super Fund Loan is significantly different and more complex than a loan you may apply for in your personal name outside of super.
  • The SMSF trustee uses the Super Fund Loan, together with its own cash funds, to fund the purchase of an investment property.
  • The property purchased in your SMSF must be a ‘single acquirable asset’ and it must be either a residential investment property or a business real estate, ie. property used for business purposes.
  • Existing SMSF assets for example shares, managed funds, cannot be used as security for the property purchase.
  • When a property is purchased by the SMSF via a Super Fund Loan, the property must be held in a separate trust [a Bare/Property trust] within the total SMSF structure. The Bare/Property trust has no function other than to hold the property asset.
  • The trustee of the Bare/Property trust is the legal owner of the property. The SMSF trustee is the beneficial owner of the property.
  • Rental income earned by the property is paid to the SMSF trustee [not the Bare/Property trust], who is responsible for making the loan repayments.
  • The lender usually places a charge over the property and has the option to take possession if the SMSF defaults on its loan obligations or other conditions of the loan contract.
  • If the SMSF is unable to pay the loan and the lender decides to recover the loan funds, it can only use the proceeds obtained from the sale of the property. It is not able to access the other investments in the SMSF to make up any loan shortfall. That’s why a Super Fund Loan is called a Limited Recourse Borrowing Arrangement.
  • A lender may, in its loan contract require you, as an SMSF trustee, to provide a personal guarantee for the Super Fund Loan and, if the loan defaults, the lender may recover losses via the personal guarantee.
  • When the Super Fund Loan is repaid, the property may be transferred from the Bare/Property trust to the SMSF itself.

SMSF Loan Structure >

Want to see our 9 tips to successfully execute a Super Fund Loan?

Submit your details for instant access

Your Name*

Your Email*

Disclaimer: This information has been prepared by Aurora Finance Group as a guide only. You should not act solely on the basis of this information because it has been generalised and tax laws apply differently to different circumstances. As tax and related laws change frequently, there may have been changes to the law since this information was prepared. None of the comments in this page are intended to be advice, whether legal, financial or professional. Do not act on this information without first obtaining specific information about your particular situation from either Aurora Finance Group or other superannuation professionals.