What is a SMSF?
A Self Managed Superannuation Fund, or SMSF for short, is a trust that allows you to manage your superannuation investments instead of using a fund manager. It is more complex than the normal methods of superannuation management, however it has many tax advantages and asset protection benefits that may not be available through other methods of investing.
Generally there is a trustee, who manages the trust on behalf of the beneficiaries who are usually you and your partner. Just like a normal super fund there are restrictions on the timing of the release of the funds, generally they are only available after you have retired. You will have to prepare a tax return for the trust each year and handle the administration of the trust accounts.
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Can a SMSF borrow money?
Yes you can borrow money. Until recently government regulations didn't allow SMSF's to borrow money. With the latest legislation now in force, your trust can apply for a mortgage as long as the lender cannot make any claims on other assets in the trust other than the property they have mortgaged.
How does a SMSF loan work?
SMSF loans are what are known as "non-recourse loans", where the lender has no right to sell any other assets owned by the borrower or guarantor other than the property they hold as security. This means that if you can't repay the loan, then the lender can't sell any shares or other property owned by your trust.
You will need to guarantee your loan, and in many cases your income may be required to help repay the loan if the rent from the investment property isn't sufficient to cover the repayments. This will be a requirement of the lender as a condition of the finance approval.
How much can you borrow?
Generally you can borrow up to 72% of the value of a residential property and a maximum of 70% (or less) of a commercial property. The reduced borrowing capacity is a direct result of the non-recourse clause in the loan contract.
Where can I find out more?
We have a webpage where you can find out more about SMSF loans. Please feel free to email us or inquire online if you require more information about borrowing using a trust.
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