Allocating retirement funds can often be a daunting task in the absence of wise investment decisions or prudent monetary practices. While there are several effective ways to ensure financial independence, Australians are increasingly seeking greater control over their investment choices. Their modus operandi? Self-Managed Super Funds (SMSF).

What Is a Self-Managed Super Fund (SMSF)?

SMSFs have emerged as one of the most prudent investment options, offering the flexibility and control that savvy investors often desire. An SMSF is a private superannuation fund that is self-managed by a member, making it a unique choice for those who want a hands-on approach to their retirement savings. With an SMSF, members are usually also the trustees, meaning they run the fund for their own benefit and are responsible for complying with the super and tax laws.

How do members benefit from their SMSF

The portfolio flexibility and autonomy offered by SMSFs are pretty lucrative. Members have the discretion to decide how their fund is managed and directly monitor where their money is invested. This presents a clear advantage of SMSFs over public super funds, as an SMSF can have up to six members, allowing a collaborative approach to retirement savings. Purchasing, owning, and selling an SMSF property comes with substantial associated fees and charges, so it's crucial that the fund's income covers the outgoing costs and allows for growth.

How can a Property Syndicator Help You Enhance Returns

Engaging with a property syndicator can simplify the process for SMSF trustees. At Peak Equities, we specialise in identifying, acquiring, and managing commercial real estate. The idea is to offer a passive investment opportunity for those who may not have the time or expertise to manage property investments directly. By structuring the investment through a syndicate, trustees can ensure that the SMSF assets are held separately and in compliance with the relevant regulations.

SMSFs and Commercial Real Estate

One investment opportunity that SMSFs can capitalise on is commercial real estate. As a safe investment haven, the real estate sector is a tangible asset that often provides strong returns through rental income and potential capital growth. With Peak Equities by their side, intelligent investors can join forces, pooling their SMSF resources to invest in premium commercial properties. Needless to say, a broader spectrum of investors will bring the required expertise that will go a long way in ensuring post-retirement stability. Commercial real estate investment can be a powerful vehicle for SMSFs for several reasons:

  • Stable Income: Commercial properties typically offer stable rental returns, providing a reliable income stream for the SMSF.
  • Long-Term Leases: With more extended lease agreements than residential properties, commercial real estate can offer greater security and less turnover.
  • Diversification: Adding a commercial property to the investment mix can diversify an SMSF portfolio, potentially reducing risk.
  • Tax Benefits: SMSFs benefit from reduced tax rates like other super funds. In the pension phase, the income from a commercial property may be tax-free.

Property Syndication: Boosting the Performance of SMSFs

Pooling of Funds

Property syndication through a firm like Peak Equities can further enhance the advantages of SMSFs. The Australian Taxation Office (ATO) oversees SMSFs, and trustees must follow the rules, including the Sole Purpose Test, ensuring the fund is maintained to provide members with retirement benefits. By pooling funds, SMSFs can access high-value commercial properties that may otherwise be out of reach. Syndication also offers the benefit of shared risk and the potential for a higher calibre of property investment.

Enabling Ease-of-access

It’s often a daunting task for retired individuals to comprehend the nuances of financial schemes. Understanding compliance and regulations of policies can often be tricky, as managing an SMSF requires strict adherence to regulations. Engaging with a property syndicator can simplify the process for SMSF trustees. Peak Equities specialises in identifying, acquiring, and managing commercial real estate, offering a passive investment opportunity for those who may not have the time or expertise to manage property investments directly.

Intelligent Risk Management

An efficient risk management setup provides long-term peace of mind to members. It’s well known that investing in commercial real estate through an SMSF does come with risks, such as illiquidity, tenant vacancies, or interest rate fluctuations. Working with a syndicator can help mitigate these risks through professional management and diversification across various properties. With Peak Equities as their partner, members are assured of clarity, transparency, and long-term assistance.

Asset Protection and Succession Planning

Small business owners may hold their business premises within their SMSF for reasons such as asset protection, succession planning, and security of tenancy. SMSFs provide a level of asset protection that is highly valuable for family businesses. These funds are held separately from personal assets, which can be advantageous in safeguarding the assets in the event of business or personal financial challenges. Asset protection and succession planning are crucial for ensuring the long-term security and effective transfer of wealth within a family business or for individual members.

The Road Ahead for SMSF Real Estate Investment

Leveraging an SMSF to enter the commercial real estate market for the forward-thinking investor can be a strategic move. It offers the potential for solid returns and a steady income stream, complementing traditional retirement strategies. As we look towards the future of retirement planning in Australia, the integration of SMSFs and commercial property investment, mainly through syndication, is poised to play a significant role. With its flexibility, control, and potential for robust returns, an SMSF could be the key to unlocking an investor’s retirement dreams. By partnering with a specialist like Peak Equities, SMSF trustees can confidently navigate the complex world of commercial real estate, backed by expertise and a commitment to due diligence. The synergy of self-managed super funds and strategic property investment has the power to transform the landscape of retirement savings, offering a compelling avenue for those seeking to maximise their superannuation benefits. Whether a seasoned investor or a newcomer to the SMSF scene, the message is clear: with careful planning, compliance, and the right partnerships, an investor’s self-managed super fund could open the doors to a prosperous and secure retirement.

What are the different options in SMSF property purchasing?

Option 1. Direct ownership:

This involves the SMSF directly purchasing a property. It allows the SMSF to enter the property market with a smaller outlay and share the ongoing ownership expenses with a group of investors. Pros of direct ownership include lower cost to enter the market and the potential for greater diversification, while cons include the SMSF not owning the entire property and having less control over decision-making processes.

Option 2. Limited recourse borrowing arrangement (LRBA):

This option allows the SMSF to borrow to buy property through a separate borrowing arrangement. It involves strict borrowing conditions and is known as a limited recourse borrowing. Borrowing to buy property through an SMSF is achieved through an LRBA, which limits the recourse of the lender and involves separate borrowing arrangements.

Option 3. Investing in property through a unit trust:

SMSFs can invest in related unit trusts provided they adhere to the guidelines. This option allows SMSFs to invest in property through unit trusts, subject to specific guidelines. Before considering an SMSF property investment, individuals should carefully evaluate their cash flow and liquidity requirements, as well as the potential benefits and risks associated with each option.

Option 4. Business real property ownership:

If an SMSF purchases a commercial premises, it can be leased to a fund member for their business, but it must be leased at the market rate and follow specific rules. Members must consider the costs associated with SMSF property ownership, including upfront fees, legal fees, advice fees, stamp duty, ongoing property management fees, bank fees, and loan costs.

How to Set Up SMSF for Property Investment

There are several steps that investors must consider while considering using their SMSF to invest in commercial real estate. These are as follows:
• Create a Trust Deed: This legal document outlines the rules for establishing and operating an SMSF.
• Register the Fund: Obtain an Australian Business Number (ABN) and register with the ATO.
• Develop an Investment Strategy: This strategy should reflect the purpose and circumstances of a member’s fund and include consideration of diversification, risk, liquidity, and the likely return on investments.
• Understand the Borrowing Rules: If the SMSF borrows money to purchase property, it must comply with strict borrowing conditions known as a ‘limited recourse borrowing arrangement’ (LRBA).

Frequently Asked Questions

When considering the purchase of a commercial property from a related party, it is crucial to be aware of the tax implications, market value requirements, and regulatory compliance to ensure that the transaction is conducted under the relevant laws and regulations. Seeking professional advice from legal and financial experts is advisable to navigate the complexities associated with such transactions.

All SMSFs are regulated by the Australian Taxation Office (ATO). The self-managed super funds section of the ATO website explains what you need to do to set up your fund. Structuring your SMSF is also vital, as this can impact your compliance obligations. You can choose two types of structures for your SMSF: individual trustees or corporate trustees.

All members of an SMSF need to be trustees, too, and there can be up to four per fund. In order to become a trustee of an SMSF, you need to consent to and sign a trustee declaration. You can’t become a trustee if you have been registered bankrupt, previously disqualified as an SMSF trustee, or have an employer/employee relationship with another fund trustee.

Yes, tax exemptions are available for commercial property held by an SMSF. The rental income from the commercial property owned in the SMSF is generally taxed at a concessional rate during the accumulation phase and tax-free if you’re over the age of 60 and no longer working. Additionally, if the property is held for over 12 months, any capital gains upon sale may be eligible for a discounted tax rate.