Advantages of buying Canberra property through superannuation

23 February 2016

With popular super funds showing relatively poor returns over their lifetimes, many investors choose to invest in property through their super funds.

What investors like about selecting property as a retirement investment strategy is that it’s classed as a defensive growth asset. Canberra properties, in particular, provide strong and stable capital growth through varying economic cycles.

Tax advantages of buying property through your self-managed super fund (SMSF):

► You can use concessional income to build up your super funds. This is taxed at 15% compared to your marginal rate, which could be as high as 47%.  You can then use these funds to purchase a property.

► The maximum rate of tax your SMSF will pay on rental income is 15%.

► After holding the property for more than 12 months, any capital gain made on the sale of the investment property will be taxed at a maximum rate of 10%, or 0% if the SMSF is in pension phase.

Borrowing to buy property through your SMSF:

You need to decide if borrowing to fund a property purchase is appropriate for your fund. You typically need 20% of the property value as a deposit inside your fund.

► Engage your accountant and financial planner to assess your plans to buy property through your SMSF and set a budget.  Ensure they are fully licensed and their advice is independent of the property agent you use.

► Choose a property that fits your budget and reach an agreement with the vendor that you’ll sign the contracts of sale once your lender approves.

► Arrange the loan and finalise borrowing arrangements with the lender, including final loan approval.

► Decide on a custodian (find out if the lender requires the custodian to be a company), then have the custodian sign the sale of contract.

► Organise the deposit for the property from your SMSF funds and sign all loan documents with your lender.

► Submit relevant paperwork for payment of stamp duty in a timely manner to avoid extra costs.