Recently, much has been made by the Australian Investment and Securities Commission (ASIC) and others of property spruikers enticing people to establish Self-Managed Superannuation Funds (SMSF) using the Limited Recourse Borrowing Arrangements (LRBA) inappropriately.

The reality is that most investors follow a carefully-considered decision making process when it comes to superannuation investment.

Individuals should consider if property investment forms part of their overall superannuation investment strategy and if so, they must decide between owning the property inside or outside of super.

The decision for some investors is made easier by virtue of the fact their super has been squirreled away and largely invested in an Australian equities market which has underperformed for the past five years coupled with a desire to diversify their investment options.

If it is determined that inside of super is the appropriate means to hold the property, then the investor needs to decide which of the eight different ways to own property in a SMSF is best for them.

These options are:

  • Cash Purchase. The individual has sufficient capital either in the SMSF already or able to be rolled into a SMSF to own the property outright.
  • Joint Ownership. The SMSF and other party, be it another SMSF, related entity or party, jointly acquires the property as tenants in common with separate interests in the property.
  • Purchase the property as a joint venture arrangement.
  • Where like-minded individuals amalgamate their superannuation savings into one SMSF to increase the capital available to purchase the property. They can then utilise the cash purchase or LRBA option. By acquiring the property in a non geared unit trust which has a SMSF and possibly others invested in it.
  • The SMSF acquires the property using the LRBA provisions where it doesn’t have sufficient capital itself to purchase the property.
  • Purchase the property via a combination of Non-Geared Unit Trust and LRBA.
  • The property is owned by a Fixed Unit Trust where the parties involved are completely unrelated allowing the Trust itself to borrow.

While property ownership within SMSFs has been popular for the past couple of years, the reality is the overall rate of investment property ownership has not shifted greatly and it is merely the investment vehicle used to own that property that has changed, from outside to inside super.

Vincents’ super specialists have helped guide hundreds of their clients through the complexities of superannuation legal technicalities and nuances to ensure the best outcome for them. We suggest that anyone looking to use their superfund in this way seek independent expert help.

For more information contact our experts, James Prineas, Director – Taxation & Business Solutionsjprineas@vincents.com.au and Brett Griffiths, Director – Superannuation Consulting

by James Prineas, Director – Taxation & Business Solutions – Vincents