SMSF Lending Can Be Complex, Difficult & Expensive if You Don’t Have the Right Team on Your Side
Vanquish Finance Group is strategically placed to assist you with your needs to borrow money with your Self-Managed Super Fund. We have direct access to all Lenders currently offering SMSF loans, with access to not only the banks but also to private non-bank lenders.
In 2007 legislation changes within the Superannuation Industry Supervision Act (SIS ACT) made it possible for a super fund to borrow funds to purchase certain types of real estate, whether this is residential, retail, commercial, rural or specialised use or zoning.
The changes to legislation allowed Self-Managed Super Funds to borrow money, if an acceptable structure was utilised. The structures are crucial and need to be adhered.
It’s the structures that make borrowing money with a Self-Managed Super Fund complex.
A Security Trustee will purchase the property on behalf of the Self-Managed Super Fund and become the property holdings’ legal owner, holding it in trust for the SMSF (as beneficial owner).
The SMSF is required to provide an equity contribution to the purchase of a piece of real estate from the Superannuation Funds assets and borrow the balance of the money.
The Basics of SMSF Finance Facilities:
- SMSF Loans are to a Self-Managed Super Fund to assist in the acquisition of eligible income producing real estate;
- the money borrowed is applied to the purchase of an asset;
- the asset is held in trust and the self-managed super fund acquires a beneficial interest in the asset;
- the Self-Managed Super Fund has the right to acquire legal ownership once all debts have been paid off the mortgage has been discharged in full;
- SMSF loans are a ‘Limited Recourse Loan’, meaning the lender cannot touch any other of the Self-Managed Super Fund’s assets other than the property held as security, in other words the rights of the lender against the Self-Managed Super Fund in the event of the facility defaulting are limited to the security property only.
General Features of Most Self-Managed Super Fund loans
- Where the security is a Residential Property borrowing can be as high as 80% Loan to Value Ratio (LVR) with 30-year loan terms
- 100% Offset Facilities linked to the loan
- Commercial Property up to 70% LVR and up to 20 years
- Rural Properties up to 65% LVR and up to 20 years
- Interest only is available for all facility types with varying terms available.
Restrictions to SMSF Lending
- No construction lending or refurbishment
- Member/s of the SMSF cannot reside in the residential property but can purchase a residential property that they intend to move into after retirement, subject to it being transferred out of the Self-Managed Super Fund
- No vacant land. The only vacant land that is acceptable is income-producing rural land, such as a working farm
- No redraw facility is available
- All property purchases must be on a ‘stand-alone’ basis
- An existing asset can be refinanced providing it meets the requirements of the SIS Act
- No leveraging of existing property is allowed however you can borrow to repay existing SMSF loans plus costs.
- Maximum of 15% tax on rental income
- Any expenses such as interest, may be claimed as tax deductions by the super fund
- Potentially there may be no capital gains tax on sale of property, if sold in pension phase
- A maximum 10% capital gains tax payable upon the sale of property if held for at least 1 year
- Greater investment choices and control over your future. The fund can pay out or reduce the borrowings at any time (subject to the terms of the relevant facility)
- Through gearing, the fund can acquire property for a greater value than that of the funds ‘net worth’
- All other Self-Managed Super Fund assets are safe and cannot be touched by any lender, due to the limited recourse provisions in section 67 (4A) of the SIS (Superannuation Industry – Supervision) Act.