SMSF LENDING
Our guide on what to consider when it comes to SMSF Loans
Welcome!
Saving adequately for retirement requires diligence, prudence, and of course, years of careful planning.
We have designed our Self-Managed Super Fund (SMSF) Lending Guide to serve as a foundation for you, offering clear and easily accessible information on borrowing from your SMSF. Equipped with this knowledge about SMSF lending, you can engage in more detailed conversations with your accountant and financial advisor.
The advantages of SMSF lending can be substantial, particularly for high-earning professionals and small business owners seeking alternatives beyond traditional institutional or government offerings
However, determining if SMSF lending aligns with your needs will hinge on various factors. It is advisable to seek guidance from a professional (such as an accountant, lawyer, or financial planner) before making significant financial decisions.
HowdoesanSMSFwork,exactly?
Simply put, an SMSF is a retirement trust that offers continuous benefits to its members after they retire. Additionally, an SMSF can offer financial advantages to beneficiaries in the event of the member's passing.
An SMSF is a personal super fund that you oversee independently. These funds offer increased flexibility, enabling investors to possess various assets such as shares, term deposits, bonds, investment properties, cash, and unlisted assets.
They have their Tax File Number (TFN), Australian Business Number (ABN), and a dedicated transactional bank account.
Contributions to the SMSF are made in the fund's name, not linked to any individual, and are managed by trustees, which is a key aspect for effectively operating the SMSF.
SMSFStructures
When structuring your SMSF, you have two main options for the trustee setup:
Corporate Trustee:
In this setup, a company acts as the trustee, with members serving as directors.
Individual Trustee:
In this setup, each member becomes a trustee. A minimum of two trustees is required, with a maximum of four.
Although the Corporate and Individual Trustee options may appear similar initially, they vary in the following aspects:
Member & Trustee Requirements
Ownership of Fund Assets
Separation of Fund Assets
Operational Costs
Penalties
Succession
These differences are nuanced, so it's crucial to delve into further details provided by the Australian Taxation Office. Seeking guidance from a tax professional is advisable to determine if establishing and utilising your SMSF for borrowing aligns with your financial goals.
Howtoknowifborrowingfrom yourSMSFistherightdecision
In the end, the decision to borrow through your SMSF rests solely with you.
Collaborating with your financial advisor and tax experts will assist you in evaluating how BrokerCo can support you in realising the most suitable plan, as determined by you and your advisors.
This may involve scenarios where you already have your SMSF established and are seeking to secure funding for new or larger commercial properties for your business.
BrokerCo specialises in providing SMSF Loans for residential and commercial properties across Australia.
If you own or plan to acquire a business property, using funds from your SMSF provides an option to avoid holding the property under your personal liability.
Numerous small business owners and professionals lease commercial properties in their names (or jointly with their spouse).
Transferring these properties to your SMSF can grant you access to tax benefits on income and capital gains that SMSFs receive, while reducing personal liability.
Commercial property andyourSMSF
When purchasing your business premises, it's not just about investing; it's also a strategic business decision due to the high setup costs. The risk of relocating on short notice or at the end of a lease is considerable, making buying a more favorable option for some business owners.
Opting for an SMSF to acquire property is usually influenced by various factors, including:
Sufficient superannuation funds from previous employment or ongoing contributions to cover the deposit and potential stamp duty.
Incorporating superannuation contributions into your financial strategy for loan repayment or investment diversification.
Renting the premises to your SMSF can cover loan repayments and property interest costs with little to no financial gain or loss.
Tax advantages in retirement, an SMSF in pension mode could provide a tax-free pension to you.
Asset protection
A lower tax rate of 15% in super compared to individual tax rates.
If acquiring business premises is part of your plans, it's advisable to discuss early on with your accountant and a BrokerCo broker about the SMSF lending process and structure.
SMSFborrowingchecklist
Are you ready to take the next step with your SMSF?
It’s likely you’ll need some documentation to make the appropriate arrangements. Get prepared with the checklist presented below:
Trust Deed Certified - You will be required to have an executed trust deed for the asset trust/security trust/bare trust, as well as a copy of the executed superannuation trust deed. The trustee of the super fund must be a corporation and must not have previously traded. It must have been set up for the transaction purpose.
Valuation – BrokerCo will organise a valuation from one of the lenders valuers. We will provide you with an estimate of the cost of the valuation prior to proceeding with the report. You are liable for the valuation cost.
Financial Accounts – BrokerCo requires your most recent tax returns and financial accounts, including the auditors report (for an existing SMSF).
Checks – BrokerCo will conduct identification and credit checks on the members of the super fund to ensure
there has been no past adverse conduct. In addition the lender will check the associated corporate entities for credit and validation through ASIC.
Security – The lender requires a 1st registered mortgage over the property.
Contract of Sale - Executed contract for the property confirming that the trustee of the asset trust is the purchaser.
Lease Tenancy Agreement - Executed tenancy lease, transaction to be at arm’s length.
SIS Compliant - The commercial property and/or practice asset must be in accordance with the SIS Act and be able to be held by the super fund. The super fund must be under SIS Act compliance at all times.
Transferringyourexisting commercialpropertyintoSMSF
If you already own commercial property (individually, together with your spouse or via family trust) you should receive advice from your financial adviser, lawyer or tax professional to transfer the commercial property premises to your SMSF to help achieve your specific financial goals, realise capital appreciation or asset protection strategy.
Things to do and consider
Speak to your Accountant and Tax Adviser - These professionals need to be involved in any property acquisition which impacts your business to discuss the specifics of the property you have in mind and primarily to explore if this is a sound investment decision that will successfully provide retirement benefits to its members.
Decide how the SMSF will Fund the Property Acquisition - You have multiple approaches here, including an outright cash purchase, debt funding, concessional and non- concessional member contributions, or even a mix of theabove.
Carefully Review all Tax Considerations - A nominal transfer duty is charged upon the acquisition of a property by SMSF from its members. If the premises are subject to
a lease to a third party and if goods and services tax (GST) is paid on the rent, then GST may be avoided by transferring the premises to the SMSF. Selling the premises will result in a capital gain tax event on behalf of the seller, and this net capital gain can be reduced significantly if small business concessions are available to offset the GST.
Understand the Sale Process - If everything lines up correctly and you proceed with transferring your property to your SMSF, you then must engage with a solicitor to prepare the transaction documents. This person must be highly proficient and up to date with all requirements of the tax, duty and superannuation laws, as well as commercial property conveyancing procedures.
