Investing super in property is a smart financial decision. By buying investment property with super,you stand to gain access to capital gains over the long term.
In addition to capital gains, an SMSF investment can bring numerous financial benefits that include:
- Lower capital gains tax (CGT)
Generally, this tax is capped at 10% as long as the gains are from the use of SMSF. The tax can even drop to 0% if the member/trustee starts a pension.
- Fast growth of retirement savings
Your income and capital growth are funneled into your SMSF, making the overall growth of your super extremely fast.
- Quick payment of SMSF loan
Income and contributions coming from the property are channelled into loan payments.
- Reduced tax on contributions
Loan interests are considered SMSF tax-deductible. This reduces the tax liability of your SMSF.
- Opportunities of buying commercial premises for business
Buy business properties using your SMSF account. You can then rent properties to a related party.
- Provision of retirement income
Upon property ownership by your SMSF, use your rental income to pay your pension payments.
Things/Issues to Consider
There are lots of benefits that you can get from starting an SMSF. However, take note of possible issues that can arise from having an SMSF.
- You must be clear about risks. As with other types of investment, obtaining a loan to buy a property comes with significant risks that must be clear to you from day one.
- Read the fine details of your SMSF trust deed. It must explicitly state that you can borrow money from a third-party lender to invest.
- Ensure sufficient SMSF cash flow to support loan repayments (personal contributions, employer contributions, etc.)
SMSF loans incur initial and ongoing costs. Consider these costs carefully before deciding to take out a loan.