Once a decision to set up a fund is made, and assuming this is deemed an appropriate investment for your circumstances, then the correct structure for buying property can be further explored.
The above picture demonstrates how an SMSF fund conducts a property purchase. It specifically shows the relationship between the Self Managed Super Fund (SMSF), the entity that actually provides the security from which to secure the money (Bare Trust) and the Lender when an investment property is purchased by a SMSF using debt.
There are many considerations from a tax perspective on the topic of investing in property using super. A list is included below (notably this is not exhaustive, and we recommend seeking confirmation on tax from a suitably qualified accountant where you feel it is required):
The income tax rate in SMSF of up to 15% where the fund remains compliant, when compared to non-super investing which can reach as high as 46,5% tax, is far more attractive.
Avoiding double stamp duty
As long as the naming conventions are done correctly on the contract of purchase andthere has been no change to the beneficial ownership of SMSF property throughout the time of holding, it is expected that only 1 lot of stamp duty on the SMSF property should be payable.
Capital Gains Tax (CGT)
As the property moves between the bare trust and the SMSF after the loan is repaid, where there has been no change in beneficial ownership throughout the period of holding the asset, it is expected that up to a 10% capital gains tax liability would be borne, which is far less than the ‘external to super’ environment. This can potentially save you hundreds of thousands of dollars in capital gains tax when compared to holding an asset outside super.
Putting money into super can lead to tax being levied on the contribution. It is worth ensuring the consequences of your contributions to super before adding money to the fund.
Goods and Services Tax (GST)
As the ‘bare trust’ does not carry on a business, there is no need to register the bare trust for GST.