An Introduction to the SMSF Loan Scheme

What is a SMSF home loan?

The SMSF is an abbreviation of 'Self-managed Super Funds'. SMSF home loan is a type of loan that is used to buy investment property. The returns on investment- whether that's rental income or capital gains, are funneled back into the super fund which in turn, increases the retirement savings of the borrower.

Who can borrow the SMSF loan?

The SMSF loans are used to buy both residential or commercial property. The Australian Taxation Office (ATO) controls this type of loan and allows membership of up to four people where all members should be trustees. The SMSF member and trustees borrow this loan with an intent of making an investment that can help grow the members' retirement savings.

What are the advantages of investing in SMSF loan?

The SMSF Home loans are considered a good home loan option as well as the best powerful way of saving for retirement. This is because it provides the borrowers with several useful advantages. Some of these advantages are listed below:

• Increased flexibility among the members to acquire and sell properties.
• Access to a variety of investment options
• Helps in increasing savings and reducing tax payments

Drawbacks of SMSF Loans

While there are some important benefits of SMSF commercial property loan, there are also a few drawbacks of this loan, about which every member of the SMSF should be aware of. These drawbacks include:

No tax loss offsets: Under the SMSF loan scheme, any tax losses from the member's commercial property can't be offset against their personal income tax. The member must rent his/her property at the market rate. Simply put, this means that if the member owns the property and lease it to his own business, then he can't apply any discounts to the rental price.

• Strict rental conditions: It is mandatory to pay all rental fees on time, and in full.
• Regular valuations: It is important for the borrowers to get their property independently valued on a regular basis.
• Showing intent: When a member purchases a commercial property within his SMSF, he must be able to prove it's solely for the purpose of providing him with a retirement benefit.
• Renovations and repair funding: With SMSF, any significant changes which are required to be made into the member's property, such as repairs or renovations, must be funded by cash directly available in the member's SMSF. He/she can't borrow money or take out a loan.

What are the terms and conditions related to SMSF Loans?

There are certain essential rules which the borrowers must follow while applying to SMSF home loans in Australia. These rules state that the property for which the loan is taken must:

• meet the 'sole purpose test' of solely providing retirement benefits to fund members
• not be acquired from any related party of a member
• not be lived in by a fund member or any fund members' related parties
• not be rented by a fund member or any fund members' related parties

What are the requirements of applying to SMSF loan?

Lenders and all other types of financial institutions offering SMSF home loans in Australia look for the following requirements in their borrowers while lending the loan:

• Deposit: A deposit of at least 30% of the property value is expected to be made by the borrower
• Rental income: The income expected from the property is factored into the borrower's ability to make future repayments of the loan
• Patterns of contribution: Lenders also analyze the pattern which shows how frequently and consistently the loan members make contributions to the fund, as these will also be relied on to meet repayment obligations.
• Structure of the SMSF: The structure of borrower's self-managed super fund must be compliant with Australian Taxation Office (ATO) and Australian Securities and Investments Commission (ASIC) rules.

Speak with a home loan broker

Applying to a SMSF home loan can be quite a tricky and lengthy process. That is why, it is best to take help from a home loan broker while applying to the SMSF loan.

Your Finance Adviser is a leading group of best home loan brokers in Australia. We are a finance advising company that works with a team of home loan experts including first time buyer mortgage brokers who specialize in providing a variety of home loan advice to a variety of customers located across all types of industries in Australia.

Shailendra Wadhwa, our passionate and committed home loan broker of the Kellyville Ridge , is ready to assist the customers in making the right financial decisions while applying to a home loan in Australia.