Using an SMSF to Purchase an Off-the-Plan Investment Property

Using self-managed superannuation funds (SMSF), it is now possible for property investors to use limited recourse borrowing (LRBA) to finance off-the-plan investments.

The strategy involves a person’s SMSF receiving rent that is concessionally taxed. This money is paid towards the loan while the person continues to work with the property then transferred to the individual upon their retirement.

Following retirement, the individual has a choice to either:

  • Purchase the property from the fund at its market price, with no capital gains tax payable if the property is used to back a superannuation pension. However, the individual is liable for the stamp duty costs; or
  • Take the property as a lump-sum, non-cash benefit. It is important to note that any capital profit made requires capital gains tax to be paid and, provided the property was owned by the fund for at least twelve months, the tax rate is an effective ten per cent.

Limited recourse borrowing rules apply and, under these rules, a separate lending arrangement is required by SMSFs for each ‘single asset’.

It is recommended that investors seek the support of a professional to ensure that the wording and structure of all borrowing arrangements are completely correct.


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