A self-managed super fund (SMSF) is a kind of superannuation trust that offers its members benefits after they retire. SMSF members also serve as the fund’s trustees, the primary distinction between SMSFs and other super funds. One of the critical benefits of SMSF property, which can have one to four members, is the degree of control trustees have when adjusting the fund to suit their particular needs.
SMSFs were explicitly created to give members financial benefits in retirement and their beneficiaries after passing away. They can accept donations and rollovers, make investments, and spend lump sums and pensions because they have their Australian Business Number (ABN), transactional bank account, and Tax File Number (TFN). The trustees have complete authority over all investments made by SMSFs and do so in the name of the fund. An SMSF needs a trustee because it is a trust.
The Benefits Of Owning Property Via An SMSF
Increased prospects for superannuation
In addition to the aforementioned, superannuation rules oblige your company to pay a commercial rent rate to the fund where the property owned by your SMSF is the property from which you operate your own business, giving you a chance to boost your superannuation savings.
Your business can deduct the rent it pays into your SMSF, but more significantly, it won’t be considered a superannuation contribution.
The capacity to pay rent tax-deductible into the superannuation fund allows you to create your retirement benefits more quickly and tax-efficiently because the tax savings available on the way to supplement are currently limited to $25,000 a year, or $35,000 if you are aged 59 and over1.
Prospective capital gains subject to a concessional tax
Any capital gain resulting from an increase in the property’s value is additionally subject to special superannuation tax rates. Therefore, any capital gain your fund realises on the sale of the property could be entirely tax-free, depending on when you choose to sell the property.
In conclusion, the fund will typically pay a CGT of up to 10% on any growth in the property value if you sell the property while it is still in the “accumulation” period and you have owned it for at least a year.
Conversely, any capital gain will be completely tax-free if you decide to sell the property once you’ve moved it into your SMSF’s “pension” phase!
Concessionary rental income tax
If you hold an asset property under your name, the tax will generally be due based on your tax rate, which may be as high as 46.5 per cent. The tax rate is also 30% if you own an investment property through a corporation.
Your SMSF will be taxable on any rent it receives at a full rate of 15% due to the concessional tax rate that applies to superannuation investment earnings. The fund will often be able to deduct certain costs associated with property ownership, such as land taxes and maintenance, so the effective tax rate could decrease even lower.
There may be further advantages to having property within your SMSF, depending on your particular circumstances.
Additionally, suppose you operate a small business. In that case, your eligibility for the favourable small business CGT reductions that take effect when you sell your company or retire is not based on your superannuation assets. Thus, SMSF property can be very beneficial if chosen wisely. You can increase your eligibility for these concessions by making a plan in advance.