Setting up property in a SMSF

05 Jul 2018


David Shaw, Founder and CEO of WSC Group Accountants, joins us as we continue our special series where we look into self-managed superannuation funds.

How they relate to property and putting property in those funds.

In this 10-minute video, David talks about just how easy or difficult it can be to set up a property in a SMSF.

With thanks to Real Estate Talk – the only place where you hear all Australasia’s leading property experts. 


Kevin Turner: Hello once again. I’m Kevin Turner from Real Estate Talk. As we continue our series, we’re looking into self-managed superannuation funds as they relate to property, and putting property in those funds, and we’re doing this for Your Investment Property.

Kevin Turner: Joining me now to talk about just how difficult it can be to set up a property in a self-managed superannuation fund, David Shaw. David is the founder and CEO of WSC Group Accountants. They’ve got offices on the Gold Coast, Brisbane, Newcastle, a couple of offices in Sydney, also in Melbourne, and in fact they’re servicing clients all around Australia. As we speak, I think David is about to get on a plane and fly somewhere in the world.

Kevin Turner: G’day, David. Thanks again for your time.

David Shaw: Yeah, thanks for having me on, Kevin. Appreciate it.

Kevin Turner: Good, I appreciate you putting us into your very busy day. I want to talk to you about setting about a property in your self-managed superannuation fund. It’s been around for a while, David, is it a difficult thing to do?

David Shaw: Look, it is, Kevin, and you’ve really got to be careful the way you actually set the fund up. There’s a couple of things I’d say. You’ve been able to actually borrow and purchase a property in a self-managed fund since 2007. That was the first big change, a little bit unexpected when that came through, but since the 1st of July 2016, there’s a few extra things we have to do.

David Shaw: That is, if you wanted to set up a self-managed fund, you’ve got to get limited financial advice to do that. Those changes that were brought in are really important … in fact, I think are good changes, because what happens is, you actually have to consider the why of what you’re doing, as opposed to just setting up a fund and then just going ahead without needing any financial advice. So it’s got a little bit more complicated over these last couple of years in terms of needing that financial advice.

David Shaw: There was many people setting up funds for under $100,000, and really, at that level, it’s fairly uneconomic, and even ASIC and ATO say the minimum you should set up a self-managed super fund is 200,000. Certainly, if you’re purchasing a property, there’s another layer, in terms of not only setting up the fund, but then you actually have to have another type of trust to house the ownership of the actual property, and difficult to get finance too, so there’s a lot of hoops you have to jump through.

Kevin Turner: Okay, well, let’s pick at each one of those as we go through. You mentioned there about having to set up a trust. What’s the cost? Let’s talk about putting property into a self-managed superannuation fund, what’s the cost of doing that, David?

David Shaw: Now, when you set up a self-managed fund, you generally set that fund up with a corporate trustee. So you’ll have the self-managed super fund and the corporate trustee, and the cost of that is round about two grand to set that up. In addition to that, you’ll have to have some financial advice and you could probably double that two grand figure for your initial set up of the fund.

David Shaw: Now, when I talk about buying a property, if you’re borrowing to purchase that property, you’ll need that additional bare trust to actually … that actually owns the property on behalf of the super fund. And again, probably about one to two grand, probably about two grand to set that up as well.

David Shaw: So when you’re actually setting up a self-managed fund to actually purchase a property, it’s somewhere between a five and six grand investment, all right. Now, the good news is, with the trust, once you’ve set that trust up, you don’t have to do separate accounts. That’s all actually contained in the self-managed super fund when you do your accounts each year and you get your audit. So initial costs, and then you’ve got your ongoing costs, but it’s only in relation to the self-managed super fund itself, having to get accounts, tax returns, and audits done.

Kevin Turner: Okay. Couple of questions now. Do I need to know the property before I set up the trust, or can I set it up and then put the property into it?

David Shaw: Good question. When you set up your self-managed fund initially, of course you don’t need to know what the property is. When you go to what I call stage two, which is actually setting up the trust, you certainly do need to know what the property is, because the actual trust itself is property specific. It’s a special type of trust called a bare trust and that trust only actually exists for the life of that property. If that property then got sold, then that trust can’t be used again.

Kevin Turner: Okay-

David Shaw: So you certainly do need the address of the property before you set that trust up.

Kevin Turner: So therefore, it follows that every new property I put into my self-managed superannuation fund, I’m going to need a separate bare trust?

David Shaw: That’s a good point. For example, if you had four properties in your self-managed super fund, you would only need one bare trust trustee company, but you would need four separate trusts, all right. Without going into all the technicalities of that, really, you would … the number of properties you have really would result in a number of trusts. So if you had 10 properties in your self-managed fund, you would need 10 bare trusts, if you were borrowing, remember. If you purchase the properties outright with no debt, we don’t have to have that secondary structure of the bare trust and the trustee company.

Kevin Turner: So what’s the timeframe in setting this up? If I’m going to go and buy a property, let’s say for instance, and I’m getting pushed for a 30-day settlement, is that going to be enough time, or do I need more time, given the fact that I’ll probably have to go to the bank as well?

David Shaw: Now, to be honest, you need about three months, and this is where sometimes people get very exuberant, get very excited, know they’ve got money in super. Just to transfer money into a self-managed fund would be almost a one to two month process, because you’ve got to rollover funds from the existing fund, for example, and then the setting up of the trust and getting loan approvals could be up to two months.

David Shaw: These loans can sometimes take time and you would certainly want to set up your self-managed fund first, Kevin, and then actually have everything ready to go, and then go and look for a property. That would be the safest way to do things, and actually have an approval from your bank in terms of how much you can borrow, because we don’t want to go down the road of getting a property and then the bank says, “No, we won’t lend you that much money.”

David Shaw: So you’ve really got to do things methodically. This is not something you can do just off a whim. You’ve got to really plan, and also getting the financial advice. This process, you know, three or four months.

Kevin Turner: There are some other restrictions to putting residential property into a self-managed super fund, in that I can’t live in it myself and I can’t rent it to any family members, so there a number of other restrictions as well, aren’t there?

David Shaw: Exactly, and that’s one of the commonly asked questions when people actually purchase a residential property in a self-managed fund. They say, “Look, can we live in it?” and of course, the answer is no. There are carve outs, remember, for commercial property because a lot of business owners actually have their own business property in their self-managed fund. But you’ve got to be very careful of these rules because if you contravene the rules, because you get your funds audited, then certainly, what happens is that comes to the attention of the ATO that manage all of the plus-half million super funds in the country and that can be bad news. In the worst case, they could make your fund non-compliant and tax you half the value of your fund. So you certainly don’t want to be doing the wrong thing, and certainly, remember with residential property, the tax office have the records and the benefit of hindsight, and if you got an audit and it was found a family member was actually living in that property, that would be a automatic contravention and a pretty serious one at that.

Kevin Turner: So just to clarify, there are some restrictions on who can live in the property, given that it’s a residential property, but there are some lee ways if it’s a commercial property.

David Shaw: That’s it.

Kevin Turner: If, as the owner of a business, let’s say your business as an example, you’re the founder and CEO, you’re the only shareholder in that company, yet the business that you operate from could be in your self-managed superannuation fund?

David Shaw: Exactly, and it’s actually a very effective tool for a lot of tax payers that have their own businesses, because they don’t want to pay rent unless it’s to themselves, and effectively, you do that with your self-managed super fund. There are rules though that you’ve got to be aware of. One, the rent has to be at a market value and you’ve got to pay it each month if you’re the business owner. So you can’t actually lend money from your super fund because that’s actually giving you the benefit before retirement. So if you’re going to go down that course of play, it’s fantastic, but you’ve got to make sure that you pay your rent at market value and pay it every month. Really important.

Kevin Turner: So many questions. Great to be able to talk to you about it, David. Thank you so much for your … and David Shaw is the founder and CEO of WSC Group Accountants. They’re all over Australia, Gold Coast, Brisbane, Newcastle, Sydney and Melbourne, and servicing people all over Australia. Reach out to them at their website,  David, thank you so much for your time.

David Shaw: Pleasure Kevin, and great to talk to you.


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