Unlock the Potential of your SMSF

Secure Funding for your Self-Managed Super Fund with Queensland Capital Solutions

New Business – Asset Finance

Queensland Capital Solutions, your brokerage firm based on the Sunshine Coast, specialising in SMSF finance.

If you’re seeking funding options for your Self-Managed Super Fund (SMSF), you’ve come to the right place. Our team of experts provide tailored financial solutions to help you maximise the potential of your SMSF, whether you’re looking for SMSF residential loans, SMSF commercial property loans, or competitive SMSF loan interest rates for refinance.

What is a SMSF Loan & Is It Right for you?

Having an SMSF grants you direct control over your investment decisions. Investing your superannuation funds in property has become a popular and appealing strategy for future planning.

This can be helpful for clients who want the ability to invest directly into property and for business owners who what to lease the property off their SMSF for their own business securing their business location.

After consulting with your financial planner and accountant, QCS will assess lending products that are suitable for your fund and strategy, provide guidance throughout the process, and continue to support you even after settlement.

What are Some of the Rules Around SMSF?

In order to acquire a property through your Self-Managed Superannuation Fund, you must comply with several regulatory rules. The property must meet the following criteria:

  • It cannot be purchased from a relative of a fund member.
  • It cannot be inhabited by a member of the fund or any related parties.
  • It cannot be rented by a member of the fund or any associated parties
  • It must successfully pass the "sole purpose test," meaning its primary objective is to provide retirement benefits exclusively to the members of the fund.

When opting to buy a property through an SMSF, it is important to note that the fund is responsible for paying a 15% tax on the rental income generated by the property. However, if you hold the property for over a year, the fund can receive a 33% discount on any capital gain it realizes from selling it. Implementing this discount effectively reduces the capital gains tax liability to 10%, offering potential tax benefits for the fund. QCS always recommends seeking advice from a qualified accountant as tax rules can change altering the benefits and returns.

Types of SMSF

Residential SMSF Loan

An SMSF home loan enables you to utilise the funds within your self-managed super fund to acquire an investment property. The surplus rental income and capital gains generated from the property are reinvested and can only be accessed during retirement.

Before you buy a property within your Self-Managed Super Fund, you need to consider key conditions.

These conditions include:

  1. The property must be exclusively used for providing retirement benefits to fund members.
  2. The property should not be obtained from a member’s affiliated party.
  3. The property cannot be occupied or leased by either a fund member or a related party.

To qualify for the standard super fund tax concessions, your SMSF must pass the “sole purpose test.” This test ensures that the Self-Managed Super Fund is used solely to provide retirement benefits to you and other members. Using the property for a personal residence or receiving income from it before retirement is considered a pre-retirement benefit, which is a serious offence. The Australian Tax Office warns that such actions can lead to civil and criminal penalties.

Commercial SMSF Loans

Historically, investors have favoured commercial property over residential property in SMSFs, though the gap is slowly closing. Lenders focused on SMSFs mainly providing commercial property loans, with residential property loans being less available. So, why would one consider investing in commercial property, and how do commercial property loans function for SMSFs?

Utilising a self-managed super fund (SMSF) presents a highly accessible avenue for investing in commercial property. The exciting aspect is that there are specific loans designed for this purpose, often offering higher loan limits compared to other property loans. It is also common for small and medium enterprise (SME) owners to leverage their SMSFs to invest in commercial property and subsequently lease it back to themselves, thus contributing rent payments to the SMSF. Here are additional details to consider regarding SMSF commercial property loans.

Advantages of leveraging commercial property in your SMSF:

  1. Leverage: One key benefit is the ability to utilise borrowed funds for investing in high-performing assets. The return on investment has the potential to outweigh the interest paid on the loan.
  2. High Rental Yield: Commercial properties, especially prime retail locations, often generate significant rental income. You can direct this income back into your SMSF, enabling you to benefit not just from capital gains but also from high rental yields.
  3. Tax Benefits: Superannuation enjoys special tax treatment in Australia. Including commercial property in your SMSF may offer greater tax advantages compared to investing outside of your super. Please note that you usually have restrictions on accessing your super funds until you reach retirement.
  4. Higher Loan Limits: When it comes to SMSF loans, residential property loans are typically capped at around $1 million. However, for commercial properties, loan limits could be higher, ranging from $4 million or even more.

Refinancing SMSF Loans

Refinancing your SMSF investment property loan through QCS could potentially result in substantial savings! Consider that these loans have high regulations and are a bit more complex than standard home loans. You need to factor in elements like interest rates, terms, conditions, and the presence of adaptable loan features.

It’s advisable to review your SMSF strategy with your advisor or qualified accountant before considering refinancing. At QCS we can work with your existing team of accountants and planners or recommend someone if you don’t have someone already.

What Documentation is Required?

QCS, as your refinancing provider, typically assesses applications based on income from the Superannuation Fund tax returns and rental income received. When applying for SMSF refinance, it is necessary to submit certain supporting documents. These include a certified copy of the SMSF Trust Deed, a certified copy of the Custodian Trust Deed, audited financial statements and tax returns for the Self-Managed Super Fund from the past two years, 12 months of SMSF bank statements, and a rental statement or lease agreement for the property used as security. These documents are essential in the refinance application process.

What are the associated costs? Before deciding to switch, it is advisable to compare fees and charges, such as loan application and ongoing fees, exit/discharge fees, valuation fees, settlement fees, break costs (if refinancing within a fixed term), and any government fees required for registering/transferring the security property.

Can I access equity through the refinance? Although the Superannuation Industry (Supervision) Act 1993 (SIS Act) permits refinancing an SMSF loan, it prohibits equity release or loan amount increase. It’s important to highlight that specific situations may allow for essential security property repairs and maintenance.

Potential benefits of refinancing:

  1. Lower interest rates.
  2. Access to interest-only repayments.
  3. 100% offset facility. (Case by Case)
  4. Unlimited extra repayments.
  5. Lower repayments

If you are considering refinancing your SMSF loan, we recommend contacting one of our specialist brokers at QCS. They can assist you in finding a suitable lender and guide you through the refinancing process.

Top 5 Advantages of SMSF Finance

Investment Flexibility

SMSF finance provides you with the flexibility to invest in a wide range of assets, including property, through options like SMSF property loans and SMSF commercial property loans. This allows you to diversify your investment portfolio and potentially increase returns.

Control and Autonomy

With SMSF finance, you have control over your investment decisions and the ability to tailor your investment strategy to align with your financial goals. This level of autonomy allows you to make informed choices based on your individual circumstances and preferences.

Potential Tax Benefits

SMSFs can offer potential tax advantages, such as tax deductions on loan interest payments and the ability to claim rental income against expenses. Properly structured SMSF finance can help optimise your tax position and increase overall investment returns.

Competitive Loan Interest Rates

Accessing SMSF loan interest rates can provide a cost-effective financing option for your investments. By comparing rates and securing a competitive rate, you can potentially save on borrowing costs and improve your SMSF's financial performance.

Building Wealth for Retirement

SMSF finance allows you to use the power of leveraging through loans to accelerate wealth creation within your superannuation. By strategically investing in property or other assets using SMSF loans, you can build wealth for your retirement and potentially achieve financial security.

Remember, SMSF finance involves complex financial and legal considerations. It is important to seek advice from your key advisors being Qualified Accountants, Financial Planners and our QCS Self-Managed Super Fund finance professionals to ensure you understand the risks, benefits, and compliance requirements associated with Self-Managed Super Fund loans.

Understanding the SMSF Loan Approval Process

Establish your SMSF: Advice – Financial Planner and Accountant

Set up your SMSF by assigning a trust deed, allowing the trustee of the superannuation fund to borrow money, potentially through an SMSF loan, for property purchase and management.

Seek loan approval: - QCS Finance Broker

Obtain pre-approval for your SMSF loan before committing to any deposit, providing you with better financial security.

Establish a bare trust deed: Accountant.

Select a bare trust deed once pre-approval for the SMSF loan is granted. Ensure that the person acting as the bare trustee is separate from the property trustee and consider avoiding individual SMSF members for this role.

Formalise the purchase contract: Real Estate Agent & Solicitor

Exchange contracts and reach an unconditional agreement between the seller and the bare trustee, enabling your SMSF to pay the deposit.

Gain formal loan approval: QCS Finance Broker

The lender will request a property valuation after signing and returning the purchase contract. Formal approval for the SMSF loan will be issued once the valuation is completed.

Issue mortgage documents: QCS Finance Broker and Solicitor

Mortgage documents are prepared with specific provisions for properties purchased within SMSFs, providing recourse for the lender against the property being acquired.

Settlement

Once all the stages are completed, the purchase will be settled. Transaction and title documents will be held on behalf of the lender, finalising the loan process.

FAQ

What is a Self-Managed Super Fund loan?

A self-managed super fund loan or Limited Recourse Borrowing Arrangement (LRBA) allows you to utilise the funds in your self-managed super fund to acquire an investment property. Australians embrace SMSFs for property investments, driving proactive retirement planning and financial goal attainment. Brokers like QCS provide SMSF home loan solutions and SMSF commercial property loans.

What is the sole purpose test?

Following the sole purpose test, an SMSF must be maintained exclusively to provide retirement benefits to its members, or their dependents in the event of a member’s pre-retirement demise. The asset must be a single acquirable asset.

If an SMSF fails to meet these criteria, it will not qualify for the tax advantages that are accessible to conventional superannuation funds.

How do SMSF loans work?

QCS provides SMSF lending assistance to SMSF trustees in borrowing funds for the purchase of an investment property, even if they don’t have sufficient funds in their SMSF to buy it outright.
The trust retains ownership of the acquired property until it completely repays the loan. Once you repay the loan completely, the ownership of the title transfers to the Self-Managed Super Fund. During the loan term, the property maintains a beneficial interest for SMSF members, and they reinvest any generated income back into the Self-Managed Super Fund. This helps in repaying the loan and potentially increasing the value of the fund.

What is the borrowing limit for an SMSF loan?

The borrowing capacity for an SMSF loan through QCS is determined by your financial circumstances. Following the property purchase, it may be necessary to maintain a specific minimum amount within your Self-Managed Super Fund. The precise minimum requirement will be contingent upon your unique situation and factors.

How do I apply for an SMSF loan?

It is crucial to acknowledge that loans for Self-Managed Superannuation Fund borrowers can entail greater complexity compared to standard mortgages or commercial property loans. While an appropriate SMSF property loan can empower you to seize control of your future, investing in property through this avenue involves a multifaceted approach. SMSF loans follow strict Australian Superannuation laws and often require a separate trust to hold the property.

To be eligible to apply for a loan, it is necessary to either have an established Self-Managed Super Fund structure in place or be in the process of setting up an SMSF. If you’re new to SMSF lending, a QCS Adviser can help simplify the process and answer any questions you may have along the way.

Can an SMSF loan be used for any type of investment?

No, SMSF loans are specifically designed for acquiring investment properties. However, restrictions apply, and the property must comply with regulations set by the Australian Taxation Office (ATO) for SMSF investments.

Can I refinance an existing SMSF loan?

Yes, refinancing an existing SMSF loan is possible, offering potential benefits such as lower interest rates or improved loan terms, subject to meeting lender criteria.

Are there restrictions on the types of properties that can be purchased with an SMSF loan?

Yes, SMSF loans have restrictions, and the property must meet ATO guidelines. Residential properties must be for investment purposes, not personal use.

Can multiple members of an SMSF contribute to the loan repayments?

Yes, multiple SMSF members can contribute to loan repayments, promoting flexibility and shared financial responsibility within the fund.

Get in touch with us

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