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How To Set Up and Buy Commercial Property With Your SMSF

by Mish Daniel | Free Information

Having your SMSF can be financially and personally rewarding, provided that your self managed super fund is set up correctly and you’re making wise investments. 

A self managed super fund (SMSF) is a fund you can manage yourself, but it differs from industry and retail super funds. 

It’s also worth remembering that SMSFs must be set up correctly before you are eligible for tax concessions. In this article, you will learn:

  • The benefits of an SMSF
  • How to set up an SMSF
  • How to buy commercial property with your SMSF

Join us as we break down the nuts and bolts of how to convert your super into a self managed super fund and how you can get started investing in high quality commercial property with as little as $100k.

Benefits of a Self Managed Super Fund

Investment Choice

One of the benefits of SMSF is the investment control and varieties of choices in investment, such as commercial property. It also offers you greater portfolio protection.

A SMSF Can Be Used To Invest In Commercial Property

Another benefit of SMSF is that you may borrow funds to purchase a single, significant asset, like a commercial property. As a potential example, if a couple has a combined SMSF balance of $100,000, they may be able to borrow money through a loan to purchase an investment property worth $200,000. 

Tax Minimisation

Another benefit of SMSF is that you can take a tax-free pension as an income stream, even after retirement. In addition, SMSF gives you more flexibility than any other superannuation structure regarding contribution, allocated time for contribution, a particular earning allocated to members, and implementing reserves.

Tax Control

SMSF also gives you control over your taxes as you can benefit from concessional tax rates. Having tax control will help you carefully consider tax strategies that can help you grow your super savings and reduce tax payments as you transition to retirement. 

Also, there is always flexibility in taxable liabilities for your fund as a fund has just one tax return. 

Setting up an SMSF to buy property

SMSFs are retirement-saving tools that are specially offered through the Australian Financial System. One difference of SMSF from other funds is that the members of an SMSF are usually trustees. This means the trustee manages the SMSF in their own way. 

In addition, these trustees are in charge of complying with all laws and regulations and must meet specific residency and management quality requirements. Here is what to consider when setting up an SMSF to buy property:

Understand that you are in charge

This is a significant step in this journey because you will be responsible for making investment decisions for the fund and complying with tax laws. This financial decision is not to be taken lightly,is not to be taken lightly, so ensure you are prepared to meet all the requirements. 

Need more clarity on setting up your SMSF? Ask our qualified and licensed commercial buyer’s agents about our mentorship program that will guide you through buying an investment commercial property so that you can be confidently in charge. 

You need to seek the advice of a commercial property professional because it is illegal in Australia to use your SMSF fund for anything other than financing your retirement.  

Comparing SMSF to other Super Funds

You need to understand that SMSFs are different from any other types of retirement funds. So, before opening an SMSF, you need to know the difference. 

SMSFs can have a maximum of four members who are trustees of the fund, but for other super funds, it is limitless. The trustees of SMSF have complete responsibility for complying with laws and regulations. With other superfunds, a professionally licensed trustee bears the compliance risk.

With an SMSF, you can choose the investments. You don’t have many choices about how the funds are invested with other funds. Insurance for SMSF trustees is optional and can be very expensive. Other super funds offer discounted insurance to their members.

SMSFs are regulated by the Australian Taxation Office (ATO). Other super funds are regulated by the Australian Prudential Regulation Authority (APRA).

Consider costs, time and skills

This is also a significant step in setting up an SMSF because you will have to spend a lot of time managing your SMSF and the cost of running it. You will also be responsible for operating the fund without passing the boundary of the law. 

So, in this case, you will have to familiarise yourself with the tax laws for SMSF because if you don’t and you go against the law, you will have to pay fees and face penalties.

In addition, as the one who is in charge of any decision about the investment, it is important to check with your financial advisor to be clear on the investment restrictions for an SMSF. Also, the fees of an SMSF can exceed that of other types of retirement funds.

Establish a Trust

The next thing for you to do is to establish trust. A trust is required to have the following;

  • Trustees
  • Assets
  • Identifiable beneficiaries
  • Intention to create trust.

Obtain The Trust Deed

You also need to obtain the trust deed. The trust deeds are the rules and conditions under which SMSF will operate. So your trust deed must be well-drafted.

This trust deed should be prepared by a professional such as a legal practitioner who understands superannuation law. It should be prepared by someone competent to do so, such as a legal practitioner or a recognised deed provider who understands superannuation law (SMSF law) and is designed to give the trustees maximum control. When the trust deed is obtained, it should be executed by the trustee(s) according to the law in Australia.

Sign A Declaration

When you are a trustee of an SMSF, you must sign a declaration form that includes your obligation, duties, and responsibilities as a trustee. This declaration form will then be legally approved, and within 21 days, you will become a trustee of an SMSF.

Lodge an election with the regulator

In setting up your SMSF, within 60 days of establishment as a trustee, you lodge an election-related to the ATO (Austrian Taxation Office). 

This election is irrevocable, and the SMSF will be subjected to the requirements of the relevant superannuation legislation and will be entitled to concessional taxation treatment at the rate of 15% as a complying fund.

If this election notice is not lodged, your SMSF will not be treated as a complying fund for taxation purposes, and the SMSF tax rate will be extremely high.

Open a cash account

Finally, as a trustee of an SMSF, you will need to open a cash account so that the funds can accept a rollover, contribution, and earnings from the investment. Also, this account will be required to pay some expenses such as members’ benefits, taxation liabilities, and accounting fees.

Buying commercial property with SMSF

Buying a commercial property with an SMSF as an investment is mainly achieved through a limited recourse borrowing arrangement (LBRA). But to limit the recourse of a lender, there will be the establishment of a separate property trust and trustee to hold the property on behalf of the super fund.

Here are some of the rules of buying a commercial property with SMSF. The property must: 

  • Meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
  • Not be acquired from a related party or a member.
  • Not be lived in by a fund member or any fund members’ related parties
  • Not be rented by a fund member or any fund members’ related parties.

Why Choose Revolve Commercial as Your SMSF Investment Partner?

If you are passionate about building and using your wealth, we can provide you with strategies that will not only support you in retirement, but to start living more of your dream lifestyle now.

At Revolve Commercial, we are committed to helping investors make residual income through custom-matched commercial properties. Our licensed, qualified professionals also provide mentorship programs for investors to learn how to buy commercial property for themselves.

If you are considering using your SMSF to invest in commercial property and looking for mentors to guide you through the process, then Revolve Commercial is here to help you.

Contact us to find out more about using your SMSF to invest in commercial property.