Property Through

Superannuation
By: Adam Hoskins
Property is synonymous with Australian
investors and is typecast as bricks and
mortar being safe as houses. It is for this
reason that everyday Australians invest
their hard earned dollars into property.
Now, this is not news to anyone, what is
news is the way in which property
investments are made or the vehicle that
is used to do so. Self-managed
superannuation funds or SMSFs for short,
is the means by which people are
choosing to invest in property.
Property through super has been one of
the fastest growing investments made
by SMSFs and at 30 June 2013,
represented 15 per cent of the total
SMSF pool of $495 billion, according to
the Australian Taxation Office (ATO).
However, not to distort the facts, only
3.4 per cent was residential property.
This is still no small amount at $17
billion.
A core driver towards the preference of
investing in property through super was
the change to the borrowing rules
introduced by the Federal Government in
September 2007. Such rules permit
SMSFs to borrow, under a limitedrecourse borrowing arrangement (LRBA),
to acquire an investment asset.
For those of you unfamiliar with the term
limited-recourse, it simply means, in this
context, the lender (bank) has limitedrecourse over the sole asset for which
the loan is encumbered on. That is; in
the instance the SMSF is unable to meet

its loan repayments, the bank can only

take possession of the asset for which
such a loan is secured. Essentially, the
SMSFs liability to the bank is limited to
the value of the asset.
As many Australians are doing, if you are
considering investing in property, a
SMSF may be an option for you. The
advantages lie in the fact that an SMSF
is the optimal tax structure, with income
and capital gains taxed at a rate of 15
per cent, or an effective rate of 10 per
cent on capital gains if the asset is held
for longer than 12 months. Furthermore,
if you sell the asset when you retire and
the fund is in pension phase, any capital
gains on the sale of an asset will be taxfree. The tax benefits are unprecedented
to that of any other structure.
Another advantage surrounds the
availability of a larger pool of funds,
being your existing super balance, to
fund the deposit for the property.
On the flip side, it is a costly exercise to
establish an SMSF and to facilitate the
LRBA. Additionally, you require separate
LRBAs for every investment you intend
to leverage.
An SMSF isnt for everyone and if now
isnt the right time, it is something that
can be driven towards in the future. It is
essential that you seek advice from your
accountant if youre considering setting
up a SMSF now or in the future.
Finally, ask yourself the question; is a
SMSF right for you?
Adam Hoskins is the Principal of JAAG
accounting.