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What is the best way to structure the purchase of an investment property in a Self Managed Super Fund (SMSF)?

Now that limited recourse borrowing is allowed in SMSFs to purchase assets such as investment properties, would this be the best method to use or would another method be more efficient and tax effective?

John Bensin
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Victor
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1 Answers1

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Two other good strategies you could implement to purchase an investment property in your SMSF include:

  1. Using the SMSF's funds to buy 50% of the investment property (or a smaller percentage if you don't have enough funds in the SMSF) and borrow the other 50% in your own name. This way you will be positively geared in the SMSF where the tax is 15% and you will be negatively geared where your tax rate would be much higher. All incomes and expenses (apart from the interest on the loan) will be split 50% between the SMSF and yourself.
  2. Buy the investment property through a Unit Trust where the SMSF uses its own funds to buy 50% of the units and you borrow to buy the other 50% of the units. The initial outcome will be similar to the first strategy above, however, what I really like about this strategy is that as you pay off the loan on your share of the units and own these units outright, you can contribute them to the SMSF (instead of or in addition to cash contribution). The outcome will be that the SMSF will end up with more and more of the units (and you will end up with less and less units) until the SMSF owns all the units and 100% of the beneficial ownership of the property. When in pension phase, if the rent from the property is not enough to pay you the minimum pension amount each year, the SMSF can issue you back with units as part of your pension. This means that you don't have to sell the property to supplement your income in pension phase.
Victor
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