Can you buy a hol­i­day home in your SMSF?

Broome Advertiser - - Property -

Aus­tralians are al­ways look­ing for new ways to max­imise their in­vest­ment in their su­per­an­nu­a­tion funds. This is why so many de­cide to set up self­man­aged su­per funds (SMSF), then look for in­no­va­tive ways to get the best re­turn pos­si­ble. Buy­ing prop­erty through an SMSF has been pos­si­ble in the past, but can you buy a hol­i­day home us­ing an SMSF? Not only is the an­swer to this ques­tion yes, but SMSF’s can now bor­row money to in­vest in hol­i­day prop­erty - a perk that was pre­vi­ously un­avail­able to SMSF op­er­a­tors. This op­tion not only frees up avail­able cash for in­vestors to buy prop­erty, it also pro­vides some breath­ing space in their bud­get, al­low­ing them to in­vest in a prop­erty they may not pre­vi­ously have been able to af­ford. If the spe­cific pur­pose of the prop­erty is to be a hol­i­day home how­ever, there are some im­por­tant things to un­der­stand when it comes to pur­chas­ing through an SMSF.

The num­bers have to work

Just like any or­di­nary loan, your SMSF must pro­vide ev­i­dence of avail­able funds and ca­pac­ity to make re­pay­ments on the bal­ance owed. Most prop­erty pur­chases through SMSFs are for in­vest­ment prop­er­ties, where rental in­come can cover mort­gage re­pay­ments. In the case of hol­i­day homes, this may not al­ways be pos­si­ble and mak­ing ad­di­tional con­tri­bu­tions to the funds to cover loan re­pay­ments may solve this is­sue. In ad­di­tion, there are the general ex­penses that come with own­ing an in­vest­ment prop­erty such as body cor­po­rate fees, prop­erty man­age­ment fees, clean­ing and main­te­nance costs, rates and util­ity costs. An im­por­tant point to note is that any as­sets held by an SMSF can­not ben­e­fit any of its mem­bers di­rectly and must only be held as pro­vi­sion of re­tire­ment ben­e­fits to fund mem­bers. This means that pur­chas­ing a hol­i­day prop­erty through the SMSF be­comes purely a busi­ness de­ci­sion, not a life­style as­set for you and your fam­ily to en­joy.

You have to know the rules

Be­ing part of an SMSF is a big re­spon­si­bil­ity and fund mem­bers must un­der­stand what their obli­ga­tions are in re­la­tion to leg­is­la­tion, tax­a­tion and rental in­come. This in­cludes: be­ing fa­mil­iar with the Su­per­an­nu­a­tion In­vest­ment Scheme Act; know­ing the rel­e­vant phases of your SMSF and the tax­a­tion rate that will be ap­pli­ca­ble to each one and on cap­i­tal gains; un­der­stand­ing how bor­rowed funds can be used with re­la­tion to the prop­erty (for ex­am­ple, funds can be al­lo­cated for re­pairs and main­te­nance but not im­prove­ments). It’s es­sen­tial to have a good fi­nan­cial ad­viser or ac­coun­tant to sup­port you and other mem­bers of your SMSF, not only to max­imise the avail­able op­por­tu­ni­ties but to avoid se­ri­ous penal­ties for mis­takes made due to sim­ple over­sights and mis­un­der­stand­ings.

Is it re­ally the best in­vest­ment for your SMSF?

Adding a com­mer­cial or res­i­den­tial in­vest­ment prop­erty to the as­sets in your SMSF is a great idea, but it’s im­por­tant to con­sider the amount of work and ex­pense in­volved in own­ing an in­vest­ment prop­erty, and whether the re­turn is go­ing to be worth the ef­fort in the long run. Any in­vest­ment prop­erty has its share of general costs such as re­pairs, main­te­nance, rates, and util­i­ties. A hol­i­day home how­ever, will in­cur ad­di­tional costs to cover the needs of its guests. An ini­tial lay­out for fur­nish­ings, linen, ap­pli­ances and en­ter­tain­ment will be re­quired, but the on­go­ing costs can also be higher. The team at First Na­tional Real Es­tate Broome have some great prop­er­ties that offer a great lock and leave sit­u­a­tion or are in a re­sort com­plex where you can re­side in up to 3 months per year. De­cid­ing on what en­tity to pur­chase your prop­erty in (ie su­per­fund or per­sonal names) is best an­swered by your ac­coun­tant or fi­nan­cial ad­vi­sor. If you would like to know what prop­er­ties are cur­rently avail­able that you can en­joy in the dry months please con­tact the team at First Na­tional Real Es­tate Broome on (08) 91922000 or email info@broome­realestate.com.au

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