SELF-MANAGED SUPER FUND LOANS

A Self-Managed Super Fund requires that you set up a special type of trust that manages your super funds. Just like any kind of super fund, and if you’re not self-employed, your employer will pay into your own fund rather than somebody else’s. However, unlike a managed fund, you will have full control over what assets or investments your fund will make.

In consultation with a qualified professional they’ll introduce you to the various nuances of the loan, although the following points, copied from the Government’s MoneySmart website, provide an early introduction into the general limitations of the fund (in terms of borrowing).

SMSF loans are complex, and as detailed above, their security is limited to the primary asset rather than the assets of the fund itself. The fact that only limited banks will lend to Self-Managed Super Funds (since they’re higher risk with lower profit) is less important than the fact that there are some lenders that have excellent products available for this ‘niche’ market.

Banks will take longer to process the SMSF loan so it’s important that you make the application around two or four weeks prior to your property search. The complexity of the lending often inherits a delay.

With proper guidance you will be able to determine if the relatively high costs of maintaining your won SMSF is offset by the gains from the managed funds. Various yearly fees, Government fees, and accountancy fees will continue to apply. A limited example of fees is listed below.

You can expect the fund to cost you about $5000 per year in administration fees.

Only an accredited professional may set up, maintain, or manage your SMSF on your behalf.

The type of property you may purchase through a SMSF is limited. The property must:

If your SMSF purchases a commercial premises, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules. We’re specialists in the medical field and often help medical professional purchase their practice through a SMSF.

Borrowing or gearing your super into property involves very strict borrowing conditions, called ‘limited recourse borrowing arrangement’, and you may only purchase a single asset with a limited recourse borrowing arrangement. For example, a residential or commercial property.

Taking a broad view, as outlined by MoneySmart, they make the following claims of geared SMSF borrowing.

These risks are very general in nature and don’t necessarily apply to your specific set of circumstances. For example, the borrowing doesn’t necessarily cost more than traditional borrowing (although in most cases it will since a higher-risk investment by the lender).

The loan is made out to the trustee of the SMSF in its capacity as a trustee with the security custodian as mortgagor. Some lenders require a personal guarantees from the members of the superannuation fund in cases where the loan cannot be serviced, particularly if you’re borrowing more than 60% of the total purchase. In essence they’re applying appropriate diligence to ensure that your fund is able to service the loan (as if it were an individual).

For new trusts, many lenders will look at the current income of the trust beneficiaries, the previous super contributions they have been making, and their new proposed super contributions.

Your SMSF can buy a commercial property that you already own; however, your fund cannot buy a residential property that is owned by you or a related party. Penalties apply if you make errors, and serious penalties apply if you attempt to circumvent this requirement.

You will need up to a 25% deposit to cover costs, fees, and duties. Since your super likely already has a high balance it’s these funds that typically contribute towards this requirement.

Setting up a fund is less relevant than deciding on whether it is actually worthwhile, or whether your investment strategy requires it. In consultation with an appropriate professional you can register the fund quite easily. You choose a name and set up the trustee and trust structure, establish an investment strategy, apply for the trust to be regulated (applying for a TFN and ARBN), create the necessary bank account, and then roll over your existing funds into your newly created fund.

The management of a SMSF is made in accordance with very strict and legislated guidelines. The following rules are very general and broad, but they’re a good starting point.

Additional information is made available via our ‘Additional Resources’ section below.

Sourced from MoneySmart, risks associated with SMSF include the following:

A qualified professional will introduce risks specific to your circumstances.

You should review the ATO website and other Government resources for a more through understanding. Contact us and we’ll refer you to one of our qualified professionals.

Much of the information floating around the web is very outdated so it’s best to rely on Government resources.

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