In the new financial year, many Self Managed super funds will try to expand the diversity of their investment strategies. Including a residential property in a fund’s portfolio is beginning to be a popular choice. There are rules that the trustees should be aware of.
Most importantly, a fund cannot buy a residential property owned by a fund member or someone related to that member. The ATO does not allow a fund to purchase property from a member or a member’s associate because this breaches the sole purpose test of the fund. The sole purpose of a SMSF is to provide retirement benefits and purchasing a property from a member is deemed to be receiving a benefit pre-retirement.
This does not stop the fund from purchasing a residential property on the open market and treating it as a rental investment property. However, the property cannot be used for private purposes such as a holiday home or rented to family members.
If the fund does not have enough money to purchase the property outright, the rules have now been changed to allow SMSF’s to borrow to invest in property. These limited recourse loans property the other assets of the fund for the banks and can be used to purhcase property or shares.
Investing in property is a clever super fund strategy, contact us to get professional advice and ensure that the fund and the property does not break rules.