Frequently Asked Questions
Why use SMSF Loans Pty Limited?
 
The answer is quite simple.  We are a specialist at SMSF Loans.  We are the first choice for professional advisors to assist their clients with their SMSF lending needs.  We have professional relationships with corporate services groups, Accountants, Financial Planners, Administrators, Auditors, and Lawyers that collectively represent the interests of over 80% of the SMSF market.  Our service commitment, technical expertise and experience won us these relationships. 
 
We are the number one searched website for 'SMSF Loans' - our name says it all. 
 
Large enough to service the needs of professional advice firms – flexible enough to assist the individual.
 
How does my SMSF purchase a property?
 
  • To save stress later - start with an indicative loan approval from SMSF Loans
  • The SMSF selects the property it wishes to purchase
  • Residential property must be purchased at arm’s length from a non-related vendor
  • Business real property can be purchased for full value from related parties so long as the property continues to be used for business purposes (by a related party or 3rd Party)
  • The SMSF establishes a Security Trust (Bare Trust) in accordance with the required compliant structure
  • The SMSF's lawyer/conveyancer acts on the purchase in the ordinary way
  • The SMSF pays the deposit, the balance purchase money (less the amount borrowed), the legal costs, and stamp duty in the ordinary way
  • On completion of the purchase the Security Trustee mortgages the property to the lender
  • The SMSF then manages the asset in ostensibly the same way as you would with any other real estate investment
 
 
You cannot occupy residential property.  If a member of the SMSF (or a related party) occupies the property the “in-house asset rule” would be breached. However, the SMSF can buy a property that the investor intends to live in after retirement.  This is possible if you transfer the property from your SMSF to yourself after you retire.
 
Related entities of the SMSF can “occupy” commercial property owned by the fund as long as it is on normal commercial terms.
 
I thought Super Funds could not borrow or charge their assets. Is this correct?
 
That was correct until amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) were made in September 2007.  Under the new Section 67A of the SIS Act, SMSF's can borrow providing the following conditions are satisfied;
 
  • The borrowed funds are used to purchase an asset (e.g. real estate)
  • The asset is held in Trust for the SMSF by another entity (i.e. the Security Trustee)
  • The SMSF must have the right to acquire legal ownership of the asset by making payments
  • The lender’s recourse, and any guarantor's recourse, against the SMSF must be limited to the underlying asset (i.e. the purchased property) and no other assets of the SMSF
 
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What other restrictions apply?
 
  • SMSF's must comply with all regulations applying to superannuation funds
  • SMSF's may, in theory, acquire up to 100% of the fund's total assets in the form of real property subject to the investment strategy of the Fund - however, it is difficult to see how this would work in practise (see next two points)
  • SMSF's must ensure that the level of investment in real property is in line with the fund's investment strategies, including diversification of assets, liquidity, and maximisation of member returns in the fund
  • Where a fund invests 100% of its assets in real property, the Trustees must ensure that the fund continues to meet these requirements, for instance they must ensure the fund has sufficient liquidity to meet its liabilities (such as pension payments)
  • The Government has also made it clear that SMSF's investing in these types of investments must have appropriate risk management measures in place and must understand the risks of property investment
 
Who pays what and when?
 
As the beneficial owner of the property and the borrower of the loan, the SMSF is responsible to pay all the usual amounts that you would expect to if you had bought an investment property and borrowed money on it in your own name rather than your SMSF.  For example, your SMSF will be required to pay;
 
  • Council Rates, Water Rates, and Land Tax (if any)
  • Interest and other loan repayments
  • Lenders fees
  • Repairs
  • Property management costs; and
  • Any insurance premiums & management fees imposed by the Property Trustee
 
 
As the SMSF is the beneficial owner of the property, land tax is payable by the SMSF.  The SMSF will only have to pay Land Tax if the total land values exceed the prescribed amount.
 
How can I transfer the property?
 
The SMSF can direct the Security Trustee to sell to any Third Party as you would if you were selling an investment property held outside your SMSF (subject to paying out the mortgage loan and any other amounts which might be outstanding).
 
What happens when the loan is fully repaid?  Can legal title be transferred to the SMSF?  Would any Stamp Duty or GST be payable with respect to the transfer?
 
When the loan is fully repaid, the SMSF is entitled to have the legal title transferred to it.  Depending on how the Trust structure is set up and administered, and the relevant State or Territory where the property is located, this transfer should be possible without incurring tax, GST, or Stamp Duty liabilities (other than nominal amounts) as the SMSF will already be the beneficial owner.  Of course, this position may change because of future changes in the law - or its interpretation.
 
Who can be the Security Trustee?
 
The Security Trustee can be a Corporate or Individual Trustee.  It cannot be the same entity as the Trustee of the SMSF but, where it is a corporate Trustee, there can be common Director/s.  Often Lenders will dictate that they want a Corporate Trustee.
 
Is there an ATO product ruling for this loan?
 
No.  Each borrower and/or adviser should seek their own expert tax opinion, based on their individual circumstances.  However both the ATO and the Government have continued to release clarifying information and appear broadly supportive of conservative and compliant use of SMSF borrowings.