BORROWING WITH AN SMSF
Since September 2007, SMSFs have been able to borrow money on a non-recourse basis from a lender to acquire certain assets provided the right investment structure is established and guidelines and rules, issued by the Australian Taxation Office, are followed
The guidelines and rules issued by the ATO are continuing to evolve for the different borrowing arrangements, such as Unit Trusts & Property, that can be put in place or the types of investments that may be acquired using a borrowing arrangement.
There are additional limitations on whether investments can be improved or repaired where investments have been damaged or destroyed. In general, the borrowing arrangement must be used for the acquisition of an asset using a property holding trust with a non recourse loan.
A simplified overview of the borrowing arrangement involves:
|• The SMSF borrowing from a lender on a non recourse basis for a property|
|• The establishment of a Property Holding Trust with a Corporate Trustee where the SMSF is the only investor|
|• The acquisition of the property by the Trust which can then be tenanted|
|• A flow of funds from the SMSF to the Trust for the purchase and from the Trust to the SMSF for the rent|
|• Financial Statements to be prepared on an annual basis to bring to account the transactions|
At Powers we have detailed knowledge of the borrowing rules for an SMSF and the use of a Property Holding Trust along with the evolving rules and guidelines issued by the Australian Tax Office. We are happy to discuss any issues and risks that need to be addressed with the implementation of this structure. We also provide a service where we work with you to establish a Property Holding Trust with a preferred Lawyer or lender so that you have a borrowing structure suitable for your SMSF.
Your SMSF will be a key component of your retirement planning as the SMSF can be used to pay lump sums or concessionally taxed income streams. If you are over 60 the benefits paid from an SMSF will be tax-free.