An SMSF is a super fund that consists of three phases, accumulation, when you try to earn and save up as much as possible, transition to retirement and pension, when you focus on spending. In this type of fund, the members are the only ones responsible for complying with the laws, which means that they are also the trustees. These days you can borrow money through your SMSF in order to buy shares or a propert. You can invest in commercial and residential property, shares, land, factories, machinery, and even farms. Meaning that you have a lot of options available to you. You couldn’t do this before, but since 2007 the rules have been changed and now you can. However, a certain set of rules must be followed in order for you to receive the self managed super fund loans. First off, you won’t get a standard loan, you can loan money through a limited recourse borrowing arrangement. The great thing about this kind of loan, is that if it defaults the other assets in the SMSF will not be touched. A great reason for an SMSF loan is to invest in assets for which the fund doesn’t have the sufficient cash in order to buy it.
Even though there are so many restrictions and rules that apply to the loan, there are some cases where they can become subject to interpretation. Repayments are made from the investment earnings or superannuation contributions. Trustees had a difficult time when they wanted to buy direct property investments if they didn’t have the sufficient funds available at hand. But this technique has opened a lot of doors for a lot of people and a lot of people have made their dreams become reality.
You get a lot of advantages and benefits with self managed super fund loans. Because often there are more fund members, their combined savings in their super can purchase much larger assets, such as warehouses and shops. You will pay a tax rate on your rental income lower than the standard, this could enable you to pay back the loan sooner than you would have. Any capital profits earned by the property are always taxed at the lower tax rate which the SMSF has and if you use the property in order to pay an SMSF pension any income and profit you make are always tax-free. Before your retirement the rent you earn by your fund is taxed at only 15%, however, holding the property for more than a year and the tax will drop to only 10% on your profit.
You also have a lot more direct control over your investments and you will have a clear image of where you invest all of your money. Your portfolio also gets a large diversification.