A Guide To Using Super Funds To Buy An Investment Property & Generate Fixed Income

An SMSF allows Australians to use their superannuation to purchase an investment property. However, they cannot buy a home that they intend to live in.

The property can be bought via the SMSF. A fund can have one to four members. Each member makes their own decisions regarding how to invest their superannuation.

While this could still be investing in shares, many people now include homes in their retirement and investment plans.

Establishing a SMSF can be a complicated process. It’s best to seek professional financial advice in order to fully understand your responsibilities and to set it up correctly. Given below is a summary of everything you need to know about super and how you can use it to buy an investment property.

What is superannuation?

Superannuation is the mechanism for individuals to save for their retirement. Your employer makes compulsory Superannuation Guarantee contributions into your nominated superannuation fund. Ideally you top this up with your own money either through salary sacrifice or personal contributions.

There are different types of superannuation funds employees can invest in. Retail superannuation funds, industry superannuation funds, corporate (employer) superannuation funds or DIY funds such as a Self Managed Superannuation Fund.

What is a Self Managed Superannuation Fund?

A Self Managed Superannuation Fund (SMSF) is a special form of Trust set up and maintained for the sole purpose of providing retirement benefits to its Members. It is managed and controlled by the Fund Members, normally through a special purpose Trustee Company, of which the Members are the Directors of the fund. The SMSF can have a total of four Members.

The Members/Trustees “create” and operate their fund under their own unique investment strategy, usually in conjunction with a financial planner. Hence the word “self managed”.

Superannuation In Australia – How It Started

Superannuation arrangements existed for many years before 1976 under the industrial awards that were negotiated by Union movement.

The Government implemented compulsory superannuation guarantees contributions in 1992. Employers were required to contribute a certain percentage of the employees’ wages or salary to their retirement accounts. There is widespread support today for compulsory superannuation.

Choice Super allowed Australians to freely invest with any fund manager. The Choice Super ruling allowed Australians to choose the fund manager they wanted to invest with. This flexibility made Self Managed Superannuation funds a viable option for managing and directing one’s own superannuation.

Direct property investment Through Super

One significant advantage of an SMSF is that it has the ability to invest in direct property investments. Funds can either purchase residential or commercial property. A fund is generally allowed to borrow a portion of the value of the property. Of course, there are rules which govern this activity, due to the nature of the legal structures.

Another indirect investment option is to invest with Australian property developers where they offer fixed income with monthly returns. Please note that you need to do a research on the development and the investment company before investment.

A large number of Australians are discovering that they are accumulating significant amount of money as a result of many years of superannuation guarantee contributions and they want to make this work and create wealth through property investment.

They want to make the future annual superannuation contributions work for them, specifically to assist with the repayment of loans to acquire property.

The superannuation accumulation amount is often at a level which will be sufficient to provide both a working cash position in the superannuation fund, as well as a deposit for the purchase of a property. Especially when spouses combine their superannuation resources into the one SMSF.

Estate planning

An SMSF is the most desirable tax planning tool. It is able to provide tax effective death benefits to nominated beneficiaries.

Acts as a retirement fund for the family

Current legislation laws allow a SMSF to have a maximum of four Members providing a great avenue for families to aggregate their retirement savings.

Insurance cover

The Trustees of the fund have the ability to provide life, total and permanent disability and income protection insurance for its Members. In a SMSF, the premiums are tax deductible. Death benefit proceeds from claimed policies are added to the member’s superannuation balance upon death.

CONTACT AN SMSF ADMINISTRATION EXPERT

SMSFs are one of the fastest growing, complex and technical retirement investment structures. SMSF administration specialists are available to guide clients through the ever changing superannuation landscape.

An SMSF administrator will help prepare accounts, financial statements & reports. They can document and maintain fund records for up to 10 years and also prepare and lodge annual fund tax return. In addition, they also assist with the appointment of a registered SMSF Auditor.