Products and Services

Superannuation Property Loans

Purchasing a property within your
Self Managed Superannuation Fund

There are 4 streams of process steps - outlined below. 

Many of these can (and should) take place concurrently to prevent delays.  

It is important to note that taking appropriate advice up-front and requesting an indicative loan approval as early as possible will greatly reduce both time frames and stress levels later in the process.

Likely time frames are provided where applicable - but should be taken as a guide only.

Overall target time-lines, from commencement of advice to settlement of the property transaction, are 60 days for newly created SMSF and 30 days for existing SMSF.

Typical Loan approval to Settlement

1. Obtain an Indicative Finance Approval

Unfortunately many lenders will insist that you go to the expense of establishing all of your SMSF Trust and Bare Trust structures prior to them giving you a loan approval.

However, most lenders have differing requirements of the structures or Trust Deeds to be established.  Thus, should the first lender selected not approve the loan or not offer terms that are acceptable you are very likely to need to change something in your structure for the next lender.  This is not only time-consuming and frustrating, it creates unnecessary expense.

Thankfully, SMSF Loans has negotiated with all lenders to allow our clients to receive an Indicative Approval prior to going to any unnecessary expense.  This is true even for those lenders who won't do this for their own customers.

We strongly urge you to take advantage of our 'bargaining strength' in this area and save yourself time, money and the run around.

2. Establish / review the SMSF

The Trust Deed establishing the SMSF must:

• Comply with the requirements of the Superannuation Industry Supervision Act 1993 (SIS Act) (including the "sole purpose test - see section 62 of the SIS Act which requires that regulated superannuation funds are obtained solely for the provision of retirement benefits to members). 
• Allow the Superannuation Fund Trustee to ensure thatinvestment in real property is in line with the SMSF's overall investment strategy (note that superannuation funds must have a written investment strategy), and the proposed purchase complies with all other requirements of the SIS Act (including but not limited to the "in-house asset rules" and the restrictions on acquiring assets from "related parties").

3. Establish the Security Trustee and Prepare to Establish the Security Trust Deed

The Security Trust Deed is a key document. Care is required to ensure there are no adverse GST, taxation or stamp duty consequences. It is important that the SMSF Trustee itself is not the Security Trustee. Such an arrangement may breach the requirements of section 67(A) of the SIS Act and result in the SMSF being non-compliant. It is also undesirable for an individual member of the SMSF to act as Security Trustee due to trust law issues regarding the merger of the interests of the trustee and the beneficiary.

The Bare Trust (Security Trust) cannot be established prior to the identification of the security property to be purchased, but everything else can be in readiness so that the process keeps moving once the property is selected.

4. Find the Property

If not already selected or, as is permissible in the case of commercial property, already held by a related entity it is time to select a property to purchase.  Offer and acceptance should be finalised such that the Bare Trust can be finally established prior to contracts being entered into.

There are considerations for sourcing investment property, and especially that to be held in a SMSF, that are different to finding a home to live in.

5. Instructions to Solicitors / Conveyancers

Accountants and Advisors should ensure that the lawyer / conveyancer acting for the SMSF on the purchase of the property understands that the property must be purchased in the name of the Security Trustee. This is an essential part of the structure - the SMSF cannot be the registered proprietor

6. Obtain Formal Loan Approval

The Trust Deeds for the SMSF Trust and Bare Trust must be reviewed by the lenders legal department.  A valuation will be conducted on the security property and, where it is a purchase, a signed copy of the Contract of Sale will need to be provided.

These, and any other requirements, will have already been provided to you in the SMSF Loans Indicative Approval Letter (at Step 1).

Your SMSF Loans Consultant will assist you at every stage and liaise with the lender, your solicitor or conveyancer and other advisers.

7. Contracts Exchanged

When contracts are exchanged between the seller as Vendor and the Security Trustee as Purchaser, the deposit will be paid by the SMSF.  There is no need for the deposit to be paid through the Security Trustee.

8. Loan Documents Issued

The lender's lawyers will prepare the loan documents in the ordinary way and send them to the SMSF's lawyer / conveyancer for signing and return.  In most cases the SMSF borrowing structure uses normal loan and mortgage documents with special provisions to provide the limited recourse against the asset.

9. Settlement

The purchase is completed. After registration of the transfer on the mortgage, the transaction / title documents will be held on behalf of the lender.

SMSF Loan - Case Study

Bob is 62 years old and runs a successful hardware store from a building he bought in 1992 and has now fully paid off. Bob wants to retire and let his son James take over the business. But James can't get a loan to buy the property because, at a value of $1M, like most people his age James doesn't have enough deposit.

Bob, his wife and James have an SMSF with total assets of $500K. In discussions with his Accountant Bob learns that his super fund can acquire the property using a SMSF loan.

The family's SMSF invests in the property by taking out a $650K loan and the SMSF uses its existing funds for the $350K deposit and other transaction costs. Bob and his wife receive $1M, which they use to top up their super and produce a retirement income stream.

No CGT is payable as the sale was exempt under the small business retirement provisions. Bob and his wife each get a tax deduction for up to $50K of the super contribution and can receive up to $85K p.a. tax-free income.

James' business pays the same tax deductible rent as previously except now the $75K p.a. goes to the SMSF. Bob doesn't have to worry about selling the business or premises to an outsider and James doesn't have to worry about being evicted or suffering 'unfair' rent increases.

James' business pays the same tax deductible rent as previously except now the $75K p.a. goes to the SMSF.