Using Your Self-Managed Super Fund for Investment Without SMSF Borrowing

SINCE THE Superannuation Industry Supervision Act was amended in 2007 to allow superannuation funds to borrow against property, Self-Managed Super Funds have become a popular vehicle for investing in property — in particular, for self-employed borrowers or those in transition to retirement phase.

However, the loan products associated with this type of lending can be onerous and restrictive and this makes this form of lending far from preferable for many borrowers.

For those looking to invest in commercial property (using funds within your Super Fund) … you are probably be looking for a more flexibility for your borrowing, which would facilitate this. And all it takes is some …

Smart Structuring

The key is to set up a structuring to allow the income from the property to flow through to your self-managed Super Fund, but have the Fund far away enough removed from the transaction, so as not be required to provide a guarantee on the loan facility.

The way you achieve this is by creating two entities sitting above the Super Fund. And here is an example of such a structure:

  • Purchasing Entity … XYZ Pty Ltd (director Jim Smith).
  • Shareholder … XYZ Holdings Pty Ltd (director Jim Smith and 100% shareholder Jim Smith) as trustee for XYZ Holdings Trust (Unit Trust).
  • Unit Holder … Jim Smith Super Pty Ltd as trustee for Jim Smith Superannuation Fund.

You Avoid a Super Fund Gurantee

In the above example, the guarantors would be XYZ Holdings Pty Ltd and Jim Smith and the borrower would be XYZ Pty Ltd.

There would be no need to get a guarantee from the trustee for the super fund. Therefore, it would not be considered an SMSF loan — as the SMSF would be considered to be merely investing in the unit trust.

Over the past few years, I have arranged loans for a number of transactions with structures similar to this. And it works well for a cashflow-positive commercial investment — where you can get a lower cost of funds and the cashflow from the rent can flow through the superfund, and therefore be taxed at a lower rate.

Bottom Line: Perhaps as a word of warning, you are strongly advised to get tax and financial advice before setting up such a structure; and also, pre-vet the structure with your finance broker or intended lender before committing to the property purchase.

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