Self managed super fund loan is an exclusive lending facility that enables a borrower to use his pre-existing SMSF to borrow or invest in commercial properties including shops, showrooms and other permitted residential properties with great ease.
Who can borrow the SMSF loans?
SMSF loans are offered to a variety of clients, including –
- People who want to invest in residential properties.
- Business owners who already have an established SMSF
The only necessary and sufficient condition to avail benefits is to have a well pre-established and compliant SMSF.
- Australian Prudential regulation Authority (APRA) expects that for the purposes of APS 113, the risk estimates assigned with the SMSF loans should be modeled separately in the event insufficient data is made available to support such modeling exercise.
- APRA also makes it clear that every time an ADI is extending credit to SMSFs, it is the ADI’s responsibility to ensure that it has given detailed consideration to risks of lending and that its application process verifies all relevant compliance matters.
SMSF loans features
- The customer is only allowed to purchase SMSF from unrelated sources.
- In case of loan default, the custodian has the ownership rights and the client is ineligible to apply for further loans under the fund scheme.
- The security property held in custodian trust for the SMSF is entitled to its income. The legal owner of the property is the custodian trust, trustee of the company.
- After repayment of the loan the ownership of the property is automatically transferred to the SMSF. All rent income is transferred directly to the SMSF.
- Subjected to terms and conditions of the respective loan, the SMSF can reduce the mortgage at any point of time as per the discretion of governing body. After the mortgage is paid fully, the property is transferred to the SMSF.
Benefits of SMSF loans
- The biggest benefit of the SMSF is that the customer could acquire property worth more than the funds existing in his deposits.
- SMSF assets are secure even in the case of loan default.
The interest expenses can be claimed as tax deductions by the SMSF.
Before setting up a SMSF fund
- Benefits: One of the main factors that could influence a customer’s decision regarding the establishment of SMSF is that the fund would guarantee benefits like deduction in income tax. The aspirant must thoroughly analyze all nuances regarding SMSF before establishing the fund.
- Money saving: It is always recommended to ponder over the financial outcomes before making a final decision about Self managed super fund loans. Increased return on investment should be the number one goal.
- Effective investment: The main motive of the investor should be to maximize investments in the form of Self managed super fund loans. The investor should study the features properly and invest accordingly.
- Information: It is very important to collect all information regarding SMSF in advance and engage an SMSF specialist in case the client is unable to manage the fund on his own.