Can You Buy A Property Using An SMSF And Rent It To Your Business? (Ep217)
I’ve got a question from Linda that says, “I’m thinking of buying a property in Portarlington, Victoria, using my super. Fifty and four months ago I was retrenched, paid off all my debts and would like to set up a self-managed super fund and use it to buy properties. Portarlington and surrounding areas have seen growth in population in particular young families. Woolworths was opened last November, there’s petrol, small industrial complex is being built as well as government funding to build a marina. My question is if I use my super of approximately 300k, do I have to permanently rent out the house or can I set it up as B&B accommodation?”
So out of that the question that I got was: Can you use your super in order to purchase a property that a business you run inhabits? (The business actually rents the property from your self-managed super fund.)
Disclaimer: I’m not a financial advisor or tax accountant so I can’t give advice on what you should do. Always seek professional help.
First thank you Linda for your question. It looks like you’ve done some research into the area or you live in the area. The only thing I want to say is that if you live in the area be careful. I’m not saying it wouldn’t be a good investment but sometimes people invest in local areas because they are comfortable there. However that doesn’t necessarily mean a property in that area is going to deliver the returns you want either in capital growth or positive cash flow. If you’re just looking because you live local then I would say go for it if the numbers are right. Just make sure you do the research.
Rules and Regulations
Now back to the question. I’ve actually done some research into this because it’s important that I provide factual advice on self-managed super funds. I was on this site which is run by the Australian Security and Investment Commission (or ASIC). The information on this site can be pretty useful. It talks about self-managed super fund property rules and I’m going to go through them:
- The property must meet the test of solely providing retirement benefits to fund members (this means it has no other benefits to you).
- It can’t be a holiday house that you use or a property that you personally live in.
- It also must not be acquired from a related party or a member (which means you can’t sell it to your spouse or anyone else in the self-managed super fund).
- Additionally fund members and related parties can’t live in the property or rent it either.
Your self-managed super fund could potentially purchase your business premises allowing you to pay rent directly to your self-managed super fund at the market rate. See the Australian Taxation Office’s webpage for more information.
You need to be careful about living in the business if it’s a bed and breakfast (B&B) because that would break the rules that I just mentioned. The B&B can be running if it is paying your self-managed super fund. You just can’t live in it. It has to be for the sole purpose of generating income for your retirement. I can’t imagine you running a bed and breakfast without actually living in it unless you get someone else to live in and run it since the premise of that business is to live there and provide hospitality to your guests. I would say that this definitely sounds like a grey area and you need to get professional advice about it.
It’s tricky and I’m sorry I can’t give you a straight answer Linda. However I hope that this has given you some clarification and at least pointed you in the right direction. With you just being retrenched it sounds like it would be difficult to get a mortgage for the property unless you found another job. There may be some lenders that will lend you a certain amount but lending you 80% or 95% might be difficult. Definitely see a mortgage broker if you’re looking to borrow money to purchase this property.
If you don’t have one my mortgage broker can give you a call. Just go to onproperty.com.au/mortgage, enter your information and he will get in contact with you and work out the best situation for you.
Until tomorrow remember that your long term success is only achieved one day at a time.