Using your own super to invest in property

Self managed super funds (SMSFs) are all the rage at the moment, people are increasingly keen to get more control of their super to avoid super fund costs and poor investments. One of the biggest advantages of SMSFs is that you can use your super to invest in property.

Not only is this an exciting opportunity for people to use otherwise locked-up super to invest in property, there is also a significant tax advantage in doing so as opposed to investing from your finances outside of super. 

A property investment held in an SMSF attracts a maximum tax rate of 15 per cent on rental income. And if the SMSF is at the pension phase the rate drops to 0 per cent. 

Alternatively, on an investment property held in your name, you’ll be paying tax on rental income at your marginal tax rate, which could be as high as 46.5 per cent. 

On top of this, there is also an advantage when it comes to capital gains tax. If the investment property held in a SMSF is sold and a profit is made on the sale, the capital gains tax will be at a maximum rate of 10 per cent, and again, 0 per cent if the SMSF is at the pension phase. 

Negative gearing in a SMSF 

SMSF have for several years been able to borrow to invest in assets such as property.

All the running costs are paid for by the fund so you’re not hit in the pocket as you would be if investing in a directly-owned property. Expenses such as insurance, rates and maintenance can be claimed as tax deductions by the SMSF. 

Private super funds are charged interest on earnings each year, which are automatically taken from members’ accounts. If you use your SMSF to invest in property, interest and other costs associated with owning the property can be offset against other taxable earnings by using negative gearing. 

The savvy investor can now leverage super funds to borrow money to invest in property that will eventually become tax-free.


News & Resources