Features & Benefits
SMSF Loans Features and Benefits
- Property investments must be made in accordance with the SMSF investment strategy and statement of advice.
- The trust deed for the fund must enable borrowing.
- The SMSF must acquire residential property at arm's length from an unrelated party.
- As long as the property is a commercial property, the SMSF can acquire it at market value and at arm's length from a related or unrelated person.
- This implies that if a loan default occurs, the lender only has recourse to the security property and any extra security offered by the guarantors, but cannot claim any other SMSF assets as collateral.
- It is held in trust for the SMSF on a bare trust basis. The trustee of the SMSF cannot be the bare trust trustee.
- It is the responsibility of the SMSF to pay back the loans. After the loan is repaid, the SMSF can acquires legal possession of the property.
- The bare trust is the legal owner of the security property, but the SMSF is the beneficial owner.
- SMSFs are permitted to lease, remodel, repair, or sell the property in the same manner that investors can deal with "regular" investment properties (i.e. They can lease, renovate, repair, or sell), but they are not allowed to enhance the property.
- The SMSF receives all rent payments. As usual, SMSF proceeds are used to make the loan repayments.
- The mortgage can be paid out or reduced at any time by the SMSF (subject to the terms of the relevant loan)
- Even if the loan has not been paid off, the SMSF enjoys all income and capital gains. The SMSF can pay down the debt with any available income, including that from the property.
- The SMSF can claim interest expenses as tax deductions in order to lower the SMSF’s taxable income.