17 Apr Smart Property Investment Magazine Article: Buying a Holiday Home in your SMSF
Justin Beeton, Founder and Managing Director of The SMSF Club, features in the May 2013 issue of Smart Property Investment Magazine, discussing the restrictions around purchasing a holiday house using super.
“The two main laws that apply to property are that the property must be for the sole purpose of providing an income in retirement – the sole purpose test – and any purchase must be from an unrelated party, unless the property meets the definition of business real property,” he explains.
“There are also limitations on making improvements to the property, depending upon whether you use borrowed funds for the purchase or not.”
Justin also points out that inconsistent rental incomes and the conservative attitude of banks when lending in tourist areas can be serious factors to consider before investing. Additionally that although banks will now lend up to 80 per cent for residential property, there are still restrictions in place as to the type of property and income derived, as well as serviceability requirements that must be met.
“They will take into consideration expected rent and the regular superannuation contributions of the SMSF members,” he says. “If you move from an A-grade region to ski towns for instance, generally the bank will only lend up to 50 per cent because of that irregular cash flow for serviceability.”
There are some great tax benefits however. Assuming the investor has fully repaid the borrowing of any limited recourse loan used to acquire the property, investors can start reaping the benefits when they retire. “Once you get to retirement and start drawing your pension, the capital gains tax is zero. Any rental income is also tax free once you are in the pension phase,” he says.
Interested in finding out more? Register your details to attend our next Free SMSF Information Night.