An increasing number of investors, and especially Baby Boomers, are using their Self-Managed Super Fund (SMSF) as a vehicle to purchase an investment property.

So I want to share a few of the most frequent mistakes I see people making so that you can avoid them.


You cannot use borrowed funds to improve the property. Improvements include developments, granny flat, extensions etc.. For all these activities cash resources of this fund must be used. It’s critical to keep excellent records on your SMSF to determine whether borrowed funds or internal money is used. When debt is used, the property must be held at a Holding Trust using a Corporate Trustee instead of directly in the SMSF. Aside from the legislative requirement to not hold the property in the SMSF there are actual and practical reasons why you wouldn’t need to hold it at the SMSF.

Lots of men and women use external funds to assist them in buying property in their SMSF by contributing the money as a non-concessional contribution. The thing is that once donated you can’t get the money back until retirement or worse still you can’t put in adequate funds within the allowable limits. You may nevertheless lend the funds to your superannuation that permits its launch if refinanced and there’s absolutely not any limit on the amount of the loan. The mistake that a lot of people make is to give the funds using a simple loan agreement. The loan agreement must satisfy the limited recourse borrowing requirements of the legislation in addition to clearly identifying all terms and conditions.


Renovations which only return the part back to a new state are categorised as fixes for the purposes of the superannuation borrowing laws. Therefore a cosmetic renovation that replaces the present kitchen, bathroom or outdoor pergola is allowable with borrowed funds. The mistake often made is to enhance the kitchen by state extending the seat area or knocking down a non-load bearing wall. The latter two are deemed to be improvements and has to use internal SMSF money. It’s a simple thing to ask your builder to divide the bill to show the progress as a distinct item of work which can subsequently be financed with money rather than borrowed funds.

When a property is demolished and state a duplex is constructed or land is originally purchased and then another contract to construct is entered into then these are adjustments to the original asset and can’t be done inside the SMSF while there’s still an outstanding debt on the property.


It’s not.

For those premiums to remain tax deductible they shouldn’t relate to the particular use to repay the debt. Insurance to effectively attain the same outcome and be tax deductible is possible with the properly worded SMSF and policy identification.


Many nations will charge stamp duty at the complete property transfer rate. Together with the first use of additional documentation at the time of purchase the next stamp duty trap can be avoided.

While the SMSF can buy a residential property from a non-related third party, it can’t buy a residential property off a member or connected person of the member. There’ll be CGT and stamp duty consequences to the sale but in terms of stamp duty most states allow for a minimum stamp duty if the property is in the individuals name and they’re also the SMSF member.

If you want to learn more — why not have a strategic conversation about your unique needs and invent a Strategic Wealth Investment Plan for you, your loved ones or your business.

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