POWERED BY MOMENTUM MEDIA
New SMSF borrowing rules spark interest in residential property
Self-managed super funds (SMSFs) are getting ready to redirect about $32.2 billion in investments to residential property, but a lack of knowledge could have costly consequences, according to Perpetual Private Clients and Capital 360.
Perpetual Private Clients and Capital 360 stated that more SMSFs were looking to invest in residential property, but there was a lack of knowledge around borrowing and how residential property fits into a portfolio.
According to their estimates, approximately 15 per cent of the existing allocation to cash and shares of SMSFs - worth about $34.2 billion - would be redeemed to acquire property over the next few years. However, many SMSF trustees did not seek specialist advice and therefore were not aware of the potential tax implications and penalties that may be incurred, they stated.
Senior manager strategic advice at Perpetual Private Clients, Chris Balalovski, said recent legislative changes had led to a “noticeable” rise in the number of clients seeking advice and strategic guidance on borrowing arrangements in SMSFs.
Balalovski asserted that trustees needed to ensure they understood the legislative and compliance requirements.
“Firstly, it must be established that the trust deed allows a borrowing. The strict rules then state that the borrowing must be in line with the fund’s investment strategy and take into account the future financial needs of all members,” he said.
“Failure to do so may result in a fund becoming non-complying and losing its tax concessions. It’s also important for trustees with existing arrangements to have their deed reviewed to ensure they comply.”
He added that the nature of the holding trust, which had the custody over the property, and the details of the loan documentation were commonly neglected.
“The result of this could mean unexpected stamp duty and capital gains tax liabilities,” Balalovski said.
AUTHOR
Caroline Munro
Recommended for you
The impact of identity theft and its threat to superannuation savings were highlighted in a case that went before the Federal Court at the end of 2023.
A recent NSW Supreme Court decision is an important reminder that while super funds may be subject to restrictive superannuation and tax laws, in essence they are still a trust and subject to equitable and common law claims, says a legal expert.
New research from the University of Adelaide has found SMSFs outperformed APRA funds by more than 4 per cent in 2021–22.
The SMSF Association has made a number of policy recommendations for the superannuation sector in its pre-budget submission to the government.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.56 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
31.06 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.81 3 y p.a(%)
