Borrowing funds to help buy property can be a super way of investing

ONE of the changes to superannuation in the last months of the Howard government was allowing self-managed super funds to borrow to buy property.

There are restrictions on how it can be done, but it does mean that an SMSF can buy property without having the funds to pay the entire cost.

QI am 47 and work for the Government. If I resign I am due a reasonable payout, most of which is preserved. Can I gain access to this money and purchase an investment property instead of leaving it in shares? Would my super fund be able to borrow to purchase a more expensive property?

AAs you are under preservation age you will not be able to access your superannuation funds for an investment outside of superannuation. But you will, however, be able to roll your superannuation into an SMSF and use the funds to buy an investment property. In addition, as long as all the various conditions are met, your fund could borrow to purchase a more expensive property.

Those conditions are:

The borrowing must be for the purchase of an asset the trustee of the super fund is allowed to purchase.

The asset purchased with borrowings must be held by a trust.

The loan taken out must be a non-recourse loan.

The super fund must make one or more payments to the trust before it can become the owner of the asset.

Basically, these restrictions mean the SMSF can borrow to buy a property if it is allowed by the investment strategy of the fund, it is not purchased from you, the loan taken out has the property as its only security, with the lending institution having no ability to attack the other investments held by the SMSF, the property is originally purchased in the name of an instalment trust, and can only be transferred into the name of the SMSF after at least one payment is made to that trust.

QI have bought a property with my SMSF that is to be fitted out as an office-residence for rent. Am I able to be the owner-builder?

AI take it you have joint-ventured the purchase. You should be able to act as the owner and builder for the development, you will not be able to become the tenant of the residence, but could rent the office portion. Members are banned from getting immediate benefits from superannuation, which would include you renting the residence portion even if a market rent is paid.

QWe have decided to look after my ageing mother-in-law and, unfortunately, due to our home not being on one level, it is unsuitable. We have therefore decided to build a home on one level and to design a room for her that will incorporate wheelchair access and special showering needs, etc. We have our own self-managed super fund. Can I use these funds to buy our home?

A You could not buy your home, as SMSFs are banned from buying assets and investments from members, except in limited cases. Exceptions include business real property, publicly listed investments, such as shares, and widely held trusts, such as managed investments.

Email questions to max@taxbiz.com.au

Self Managed Superannuation Funds: A Survival Guide, by Max Newnham, is

available in book stores.