SMSF Investment in development and minimum?

Hi Mate,

Lots of things to note so I will do it in bullet format:

1. You can invest via SMSF in property with $50k

2. You need at least 20% plus government charges as a deposit so with a deposit of $50k you will be looking at a purchase of $210,000.

3. You will need to set aside around $2k-3k in set up fees for the SMSF entities

4. You will be up for around $2k in set up fees for the loan itself

5. The security must be accpetable for the lender – in other words forget about buying in the middle of nowhere or a fire damaged house.

6. You cannot borrow funds to renovate but you can use your own funds.

7. No you cannot do a syndicate as you have mentioned above.

There are about another 100 points but its is hopefully a good kick start. 

SMSF is not overly complex but if you are going to take it seriously engage professionals. I consistently deal with accountants that stuff up the set up of the entities. 

Regards

Shahin

It could be possible.

Reg 13.22C SIS regs

To clarify, your SMSF cannot borrow to renovate…. from anywhere.  A SMSF can renovate if it has enough spare money in the SMSF bank account to do the renovation without borrowing.  Alternatively you could donate your own money into the SMSF to do the reno but then you cannot take it back out because that would be a loan, and a SMSF is not permitted to do a reno with borrowed monies.

Not to hijack this post, but if you wanted to do a development under your own name or some other structure for which you are the director or beneficiary, can your smsf invest in that trust or even just lend money to it or yourself at a particular rate of interest?

i guess what I am looking at here would be if you wanted to secure a deal outside of your super fund but use its capital to fund deposits or whatever… and return it a profit to the super fund too.

I know i posted this on another post but as this is also similar i thought i would pose the question on here as well to see the responses

How do the ato treat SMSF buying a property outright in cash and subdividing. ie (corner block). No borrowings at all.

Is this allowed?

Or for example

making a one off contribution of 150,000 (non cons limit 2012/2013), the contribution would come from a LOC against another asset not owned by smsf. total funds in cash then used to buy and subdivide a property whilst renting existing house

Or

Taking a LOC (approximately 150k) against another asset not owned by smsf and creating a ungeared unit trust.

Then making concessional contributions each year to slowly purchase those units off the individual thus repaying the LOC but after tax of 15 % concession.

and i guess finally do you have any advice on is it possible to get a limited recourse loan on a property that has been owned outright in a Superfund. Or can this only be done at the time of purchase.

Wilko, a trustee of a SMSF cannot borrow money, s67. But s67A allows a trustee to borrow money (wtf?) by introducing an exception. This is to acquire a single acquireable asset.

(incidently you know when legislation has been amended when the numbering jumps out of sync and letters have been inserted such as s67 then s67A s67B etc?

So with your LOC how are you going to get than into the SMSF? Loan or contribution?

If there was no loan then sub-division would be possible I think.

Another possibility is a JV with a SMSF. Buying Tenants in Common 50/50 with a SMSF

Is there A reason why you suggested 50:50 as the ratio of TIC or was it just a example. 

Hi again All

Sorry I have been away and not contributing. Just busy. here are some ideas and comments for your forum from Anthony K.

Response to Property Investors

Problem = Property Development under SMSF.

Response 1. JHAC with $50K in SMSF – Thinking of Syndicate for the development.

Here are my suggestions and comments.

Suggestion 1. Think about getting 3 SMSF partners with $50K or more for a single SMSF syndicate with a Corporate Trustee. With 4 Directors and shareholders correctly arranged.

Response 4.

Jacqui, a SMSF cant borrow to renovate but use own cash

Yes but the correct term is: “can repair or pay expenses of acquiring the asset but not to “improve” the Acquirable Asset (AA)

S67A deals with a single AA,

S67B deals with more than one AA’s which are identical like a tranches of shares of the same class in the same company.

S67B cannot apply to a number of properties which are SIMILAR such as units in the same block unless they are on one title when they come under S67A.

If you want to buy a number of units whether in a single block or more than one, then each is a single acquirable asset under S67A with a separate loan and Bare trust documentation.

Response 5. Terry’s cryptic “It could be possible”13.22C”

Note there are 4 sub-sections in SIS Regulation 13.3A which apply, and they are:

13.22A Definitions

13.22B, only applies to events prior to 7:30 12th May 1998

13.22C  which applies only to events after 28th June 2000

and 13.22D.sets out the various events which cause a SMSF breach.

10 Terry W SMSF cant lend to associate or member  S71 SISA

SMSF lending to members or related persons or similar other access is prohibited under S65 of SISA.

There are 2 sections in SISA are numbered S71.

S71 of Sub-division C of SISA, –  In House Assets and

S71 of Sub-division D of SISA,  – the Transitional  Provisions (Grandfathering) which applied to a SMSF + Unit Trust established before 7:30 12th May 1998 and ended on 30th June 2009.

However we still use 1997 SMSF + Unit Trusts where there use and circumstances can be appropriate.

Response 12 Terry W

Your smsf can own units in a unit trust or shares in a company. see SIS reg 13.22C.

But any property owned by the trustee of that trust cannot be mortgaged or charged in anyway. –

You would need to study S71 of Sub-division C of SISA, –  In House Assets, and the anti-avoidance provisions in that section, also

SISR 13.3A, SISR 13.22C and D

SISA Sections

S52, S62, S65, S70, S109 and

SISA S173, Special Income and

ITAA 1936 S102 Public Trading Trust

Response 14. Wilko, a trustee of a SMSF cannot borrow money, s67.

But s67A allows a trustee to borrow money (wtf?) by introducing an exception. This is to acquire a single acquireable asset.

(incidently you know when legislation has been amended when the numbering jumps out of sync and letters have been inserted such as s67 then s67A s67B etc?

Wilko – There are actually 8 major subsections in S67 of SISA.

S67(1) Prohibits Borrowing

S67(2),(3) are old exceptions from 1993

S67(4A) was introduced in Sept 2007 as the new SMSF Borrowing section and was amended in June/July 2010 when it became S67A for a single asset and S67B for multiple identical assets.

Also Terry:

A JV is a Joint Venture but a JV is neither the same as a Partnership or Tenants In Common, they are each separate and distinct in establishment, operation and in nature and liabilities.

Most importantly only “Tenants In Common” is mentioned and sanctioned in SISA.

Anthony K @ A4Companies

Hi ANthony,

I am just now looking at the legislation you have cited about. Are you sure you have the ITAA sections correct?
s102 related to revocable trusts
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s102.html
and s 173 seems to be irrelevant to this discussion
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1936240/s173.html

Thanks