Growing your super property portfolio, within the rules!

[conwool]

SMSF - vacant land

HI
I've read all the above with great interest as my husband and I are trying to find a creative solution to this problem:

We want to purchase a property that is out of our non creative funding price range. It is one residential home on two titles. The house on one title, the garage on the other. We were hoping to purchase the house as our PPR and the other lot through setting up a SMSF. Then I remember that you can't purchase vacant land in a SMSF. Is there anyway around this?

 

[conwool]

SMSF - vacant land

sorry forgot to mention we would purchase the vacant land with the intention of building a residential investment home on it.

 

[nonrecourse]

Get advice

sorry forgot to mention we would purchase the vacant land with the intention of building a residential investment home on it.

I won't say you can't do that because there is probably a sharp Trust/SMSF lawyer out there that can get you around the restrictions, namely it has to be business real property, building would constitute running a business in an SMSF which is a no no unless you have a unit trust that was formed before the 11th of August 1999

 

[MikeF]

sorry forgot to mention we would purchase the vacant land with the intention of building a residential investment home on it.

Vacant land and/or construction is a BIG no both from a SMSF lender prospective and more importantly the SIS Act/ATO.

 

[markcoinoz]

This is a very interesting thread.

Great information.

Thankyou

My situation maybe slightly different to others here.

Have my own SMSF shared with my wife.
At the moment it is made up of mainly shares and a small amount of cash.

We don't have any property at the moment and are not entitled to FHOG.

My wife also has a managed fund whereby her Super has gone backwards over the last 12 - 18 mths even though she has salary sacrificed throughout that time.

What i am thinking about is for her to close her account and transferring the remainderwhats left of it into our SMSF and use a portion of the funds as a deposit to buy an IP. 60% Lvg. I have seen a few regional properties that would offer excellent rental returns with the distinct possibility of decent growth within a few years. Have only just started to look at the possibilities of setting up either a Trust Fund or Warrant. Not sure which is the better way to go. We are both in our early 50's. With our work contributions combined with rental return the repayments would be self funded.

I welcome any thoughts on our situation.

Perhaps other ideas or situations that i have not yet taken into account.

TIA.

Markcoinoz

 

[Ryan Love]

Hi All

I have recently written an article that is relevant to this thread.

http://www.apexpartners.com.au/arti...ion/why_not_own_property_through_a_smsf_.html

Usually property is a long-term investment and for the right person it can make a lot of sense owning it in a SMSF.

The tax benefits can far outwiegh any negative gearing tax benefits that you get by owning it outside a SMSF.

The main issue you need to content with is the fact that the investment is effectively lock-up until age 60 and there is a risk of change in superannuaiton law over time. If you can get a handle on that, then it can present a compelling case to own the property in your SMSF.

The article goes through a case study. We have implemented this strategy for several clients recently.

Good luck with your investing!

Ryan Love
Director
Apex Partners

 

[AUSPROP...]

Vacant land and/or construction is a BIG no both from a SMSF lender prospective and more importantly the SIS Act/ATO.

must be ways around this... a syndication I am stuck in (demolish and build townhouses) has many other super funds as my partners.

 

[jsj]

I sold one vacant block a few years ago for a client who had two vacant blocks in his SMSF. He had purchased those from the proceeds of the sale of another VB in his SMSF. There must be a way unless things have changed since 05.

 

[conwool]

Hi all

Thanks so much for the feedback. Now that I have spoken to our accountant I would like to share the update with you all.

The accountant (who specialises in SMSF) said vacant land not the issue. So long as you can state a good case for it gaining in value for the SMSF. We possibly could also have rented out the garage to us under a lease agreement on a commercial basis to provide income. Development is possible and there were various ways that were given to us to undertake that. However............. just as we thought we were getting somewhere the bank came back with less than we were hoping for in the loan stakes. Back to the drawing board.

 

[Ryan Love]

Hi All

Regarding property development in an SMSF. I have been hearing mixed views in the industry of late on the issue of a SMSF developing land.

The link below has a case study (albeit from 2005) which says that you can do it.

www.cavendishsuper.com.au/documents/techupdates/CavendishTechnicalUpdateSep05.pdf -

The alternate view is that property development constitutes carrying on a business.

The ATO has always been concerned that an SMSF carrying on a businesses may be in breach of the sole purpose test. This is because conducting the business — rather than providing retirement benefits — may become the sole purpose of the fund.

This issue was raised at the National Tax Liaison Group Superannuation Sub Committee meetings on both 26 October 2005 and 8 February 2006. The minutes of the earlier meeting state:

The Tax Office indicated that there is nothing in the legislation to prevent it. However, there are potentially a number of issues in carrying on a business that might lead to contraventions of the SIS Act and Regulations (such as the sole purpose test, or the borrowing of money). As each case must be considered on its own merits, the Tax Office cannot give a more definite answer.

The ATO's recent publication Self Managed Superannuation Funds - Roles and Responsibilities of Trustees states:

A possible indication that the sole purpose test has been contravened is where a fund is running a business as part of its investment strategy. If a superannuation fund is conducting a business, it may not be administered for the sole purpose of providing benefits for the members and beneficiaries of the fund.

Another ATO publication DIY Super - It's your money... but not yet! also discusses this issue, but is being reviewed.

In context of the above, I would be very careful before doing property development in my SMSF.

I hope this helps...

PS. On the topic this seminar next week may be of interest to those in Sydney http://www.apexpartners.com.au/arti...rmation/smsf_property_investors_workshop.html

________________________

Ryan Love
Director
Apex Partners

 

[nonrecourse]

Hi All

Regarding property development in an SMSF. I have been hearing mixed views in the industry of late on the issue of a SMSF developing land.

The link below has a case study (albeit from 2005) which says that you can do it.

www.cavendishsuper.com.au/documents/techupdates/CavendishTechnicalUpdateSep05.pdf -

The alternate view is that property development constitutes carrying on a business.

The ATO has always been concerned that an SMSF carrying on a businesses may be in breach of the sole purpose test. This is because conducting the business — rather than providing retirement benefits — may become the sole purpose of the fund.

This issue was raised at the National Tax Liaison Group Superannuation Sub Committee meetings on both 26 October 2005 and 8 February 2006. The minutes of the earlier meeting state:

The Tax Office indicated that there is nothing in the legislation to prevent it. However, there are potentially a number of issues in carrying on a business that might lead to contraventions of the SIS Act and Regulations (such as the sole purpose test, or the borrowing of money). As each case must be considered on its own merits, the Tax Office cannot give a more definite answer.

The ATO's recent publication Self Managed Superannuation Funds - Roles and Responsibilities of Trustees states:

A possible indication that the sole purpose test has been contravened is where a fund is running a business as part of its investment strategy. If a superannuation fund is conducting a business, it may not be administered for the sole purpose of providing benefits for the members and beneficiaries of the fund.

Another ATO publication DIY Super - It's your money... but not yet! also discusses this issue, but is being reviewed.

In context of the above, I would be very careful before doing property development in my SMSF.

I hope this helps...

PS. On the topic this seminar next week may be of interest to those in Sydney http://www.apexpartners.com.au/arti...rmation/smsf_property_investors_workshop.html

________________________

Ryan Love
Director
Apex Partners

If you have a trevisan trust (a pre August 11 1999 unit trust)If the trust deed is set out properly you can operate a business. There is a limited market for old Trevisan trusts that allow you more latitude.

Regards NR

 

[BV]

Hi All

I have recently written an article that is relevant to this thread.
http://www.apexpartners.com.au/arti...ion/why_not_own_property_through_a_smsf_.html

The article goes through a case study. We have implemented this strategy for several clients recently.

Ryan Love
Director
Apex Partners

Ryan
Nice article.
Were solicitors involved in the personal lending to the SMSF
or was it a case of writing a loan document and getting the 2 parties to sign it?