Using my superannuation


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Question: I am 42 years old and have a self-managed superannuation fund holding approximately $300,000 in cash. I have not retired, but my accountant has told me that I can still access this money now in order to buy property. Is this correct and, if so, what is the process for using my superannuation money in this way before I retire?

Answer: Yes, that’s correct. The super laws have been amended to allow a self-managed superannuation fund (SMSF) to borrow money and charge assets for the purposes of acquiring property. However, there are some important points you should be aware of before rushing off to sign any contract for purchase. For example:

  1. Your fund may purchase any asset which it could otherwise have acquired in accordance with the law, its investment strategy and its own rules.
  2. The purchase must usually be an arm’s length transaction (ie the property is purchased from a ‘stranger’) but this is not the case for business real property. If your fund wishes to purchase business real property, the seller can be a ‘related party’ of the fund.
  3. The borrowed moneys must be used for the acquisition of the property. The important word here is ‘acquisition’ – the borrowings cannot be used to, say, develop property or for a refinance.
  4. Legal title to the property must be held on trust for the fund by a trustee, and this trust relationship documented in a deed. The ‘Property Trustee’ cannot be the trustee of the fund. Different lenders have different requirements for the Property Trustee. Some, for example, will require that it be a company (which can be controlled by a member of the fund).
  5. Lenders will lend to the fund on a limited recourse basis, which means that the fund will only be ‘exposed’ to the extent of the repayments it has made.
  6. In practice: the fund will charge its beneficial interest in the property to the lender; the Property Trustee will grant a mortgage over the legal estate to the lender, and any personal guarantees will be designed so that the guarantors have no recourse to the fund, but only to the property purchased.

The structure must comply with all the above requirements. If it doesn’t, your fund may be deemed ‘non-complying’. Likewise, the deed between the Property Trustee and the fund is a key document and should only be drafted by a lawyer.

Once the contract for the purchase has settled, dealings in respect of the property should proceed as if the fund held the legal title to the property. For example, any rents will be paid directly to the fund and the fund will make loan repayments to the lender. For its part, the fund can deal with the property in the same way that an individual or company can deal with ‘normal’ investment properties (eg lease, renovate, repair or sell).

Subject to your loan terms, the fund will be able to pay out or reduce the mortgage at any time. When the mortgage is paid out in full, the fund may arrange for title to the property to be transferred to it. This, though, is not essential, provided that the fund has the right to require that the Property Trustee transfer the property to it on repayment of the loan. If the Property Trustee continues to hold the property after the loan has been repaid, it would continue to hold the property for the benefit of the fund.

To be on the safe side, I recommend you see a lawyer who specialises in this area before proceeding with any borrowing.

- Kathleen Conroy

Kathleen Conroy is a director in Gadens Lawyers’ corporate advisory group. She has extensive expertise in corporate law, business acquisitions and sales, asset protection and estate planning, and mergers & acquisitions.

Have other questions about investing through Super? Click here to talk to one of our experts.

Disclaimer: No magazine article can consider your individual circumstances or personal needs in relation to your sale or purchase transaction. You should seek advice for your particular circumstances before entering into any transaction.

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