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We want to buy a property in Port Macquarie with a view to relocate and retire in 5 or so years. Can we purchase the property through our SMSF, borrow money and then pay it off when we make the move?
Responses
Short answer is no
The longer answer is still no with a heap of boring super gibberish attached.
Your biggest headache is whether or not the investment in the house by your super fund is for the SOLE PURPOSE of providing for your retirement.
SOLE PURPOSE is going to be very difficult to prove after your super fund takes a hiding in stamp duty and legals just to sell the property in a very short window of time.
You need to look at the potential cost of getting smacked for being a non complying fund where the sole purpose test has been failed.
It may be that the fund gets to pay tax at 47%...... and maybe you are prepared to take the hit on the rental income to secure that property.......
BUT..
It MAY be that the fund gets smacked with 47% tax on its ASSETS too.
how keen are you on risking losing half of your super on a gamble that the ATO wont pick up on this pesky sole pupose thing?????
Interesting response Brendan, and I agree with the short term expense of stamp duty etc.
Interested in your comments on a variation of the above question. What if I purchase a property in my SMSF because I believed it a good investment (eg good capital growth prospects) for boosting the value of my super fund to provide retirement benefits later. Fast forward 10 years and I’m now retired and I think, you know what? I wouldn’t mind living in that property owned by my SMSF. So I sell my existing principal residence, then use the cash to buy the property from my SMSF (at market rates).
Do you see a problem with this?
Thanks
James
Hi Luke,
Run the numbers, I would expect that there would be a better way to do this financially and also legally. The costs to do this inside an SMSF and then transfer to yourself again, would likely outweigh the growth in property prices in PM over the next 5 years anyway.
If you are 60 or older, you could investigate starting a transition to retirement strategy that gives you the income needed to borrow the money in your own name and then sell your current home to cover the remaining debt when you relocate.
Speak with a fully qualified accountant and adviser and don’t expect that you can play with the rules, it’s a massive risk.
Best of luck
Scott
Hi james. I have clients that have done exactly what you have said. The difference is that it sounds like this property is not going to be transferred to the members in their retirement after being held by the fund. The purpose here is to provide a benefit to the members in their retirement
Contrast this with investing in a property for a short period to then transfer this property BEFORE the member retires.
Is that investment for the purpose of providing a benefit to the member in their retirement???? Or is it to provide a benefit to a member prior to satisfying a condition of release??????
I think there is a significant risk that the ato would look at the whole arrangement and say ......" yeah nah.".......and the outcome here is VERY expensive.
Just my thoughts on the strategy... .i would advise my clients to be very careful if they want to employ this strategy
Cheers
BC