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Buying a Property through SMSF: What You Should Know About It

Buying a Property Using self-managed super fund (SMSF) to acquire property is becoming increasingly popular since it offers significant security. However, the decision to buy property through your SMSF is one that calls for careful consideration.

Sentinelpg.com.au shares an overview of SMSF.

What Makes it a Popular Means?

The benefit you draw from this kind of transaction which is perhaps the most important is that transactions involving SMSF are subjected to a much more favorable tax regime. Here are good examples.

1. Your rental income on SMSF property will be taxed at 15 per cent compared to higher taxes of up to 45 per cent charged to regular investors.

2. In pension phase, rental income from the property will be tax-free.

It is noteworthy that the cost incurred in purchasing and managing the property could very well produce a negative income that you can offset against other income to reduce your tax even further.

Property bought through SMSF is protected from debt recovery (this case is different with the loan with which the asset was purchased.

Properties acquired through SMSF means that you protect yourself from the impact of Capital Gains Tax (CGT) until retirement, at which time your gains will be tax-free.

Finally, the owner gets to diversify their retirement portfolio as opposed to one who relies solely on single or few investments.

What are the Pitfalls?

1. You nor your relatives and friends can live in the property you bought through SMSF.

2. When you borrow to buy property through your super and you’re negatively geared, the tax offset only applies to other income earned within the fund – not your regular income.

3. When the property is still under loan, you are not allowed to renovate or improve it.

Borrowing through an SMSF is different from a normal home loan, which is straightforward thus comes with many stringent rules. Nonetheless, it is a great way to invest for retirement with the guidance of an expert who will help you take care of these pitfalls.