???Buy vacant residential land with SMSF, no borrowing??

Discussion in 'Superannuation, SMSF & Personal Insurance' started by DonnaS, 8th May, 2020.

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  1. DonnaS

    DonnaS Member

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    Hi everyone, looking for clarification on if I can buy vacant residential land with SMSF. I have the funds to buy it outright with out borrowing but I find so much conflicting information.

    It is 35acres and has a small holiday cabin which would need work if transformed to be liveable and council approval.
    So can I buy vacant residential land or do I have to buy property that returns an income like a rental property?

    Thanks in advance.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    It could, but it couldn't later borrow to build.

    And just because it could doesn't mean it should.
     
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  3. Lindsay_W

    Lindsay_W Well-Known Member

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    First thing - would borrowing capacity be enough based on super contributions only, no rental income from the property?
     
  4. DonnaS

    DonnaS Member

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    Hi Linsay, I have a balance of 320K cash, looking to buy land approx 150K. I am 2 years away from retirement. Can I buy land in the area I want to retire to and let it sit. Or do I have to rent the land/agist etc to earn an income for the SMSF?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    what does the trustee propose to do with the land?
     
  6. DonnaS

    DonnaS Member

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    Hi Terry, I intend to either let it sit for 2 years until my retirement or agist it out now. Does the land have to provide an income?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    It doesn't but you cannot use it, even after retirement. Unless it is classed as business real property and there is a commerical lease in place on market terms.
     
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  8. DonnaS

    DonnaS Member

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    Thanks Terry. If I buy it now, let it sit until I can access my super, take out all my super, my understanding is that I can then use the property as I wish. Is this correct? Difficult to find info on this.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Nope. You will have to purchase it from the SMSF or the trustee might do an inspecie transfer.
     
  10. DonnaS

    DonnaS Member

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    Can you explain "inspecie transfer"pls
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Just transfer the property to you as a lump sum . e.g you want to take $200k out of super and the land is $200k, you can have the trustee sell the land and take the cash or just take the land. Different legal and tax aspects.
     
  12. DonnaS

    DonnaS Member

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    Oh Ok thanks. and I appreciate you keeping it straight to the point. My accountant seems to speak another language. :).
    So, in theory, I can buy vacant land now with SMFS without borrowing at say 130K, leaving 170K in Super. Then when I have access to my super and retire, I can transfer it to myself out of the super. Then I can do with what I want to?eg. live in mobile home on the land.

    Also what tax % would I pay if I access Super at preservation age (58) rather than 60.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    The SMSF Trustee would buy the land - not you (unless you are the trustee, which you shouldnt be!)

    Once you own the land you can do as you please, only subject to laws - but it will no longer be the SIS Act that applies.

    You should seek legal and financial advice before doing anything or causing the fund to do anything!
     
  14. DonnaS

    DonnaS Member

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    Thanks Terry, much appreciated.
     
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  15. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    A lot of complixities to that view
    1. Cant be used at all by any related party while held by fund.
    2. Duty and other costs on transfer to member...This seems a sole purpose breach to consider such a strategy.
    3. Taxes incl on withdrawal, setup costs and annual compliance costs
    4. Costs of maintaining a fund and complying with complexities of super law such as sole purpose test, investment strategy etc.
    5. Borrowing for 35acres of vacant land with a (maybe) cabin. Wont happen.

    The investment strategy for the fund must consider an array of isssues. Im not sure if many auditors would find a decision to buy a predominant asset in a smsf that likely has negative or poor returns (or cant be used without council approval) until the land is transferred to the mmbr in 2 years poses an acceptable strategy. The investment strategy is something the auditor is obliged to check.

    This proposal seems more early access to super than a question about investment using super.Basic financial advice would likely raise more concerns than the above.