Using Super to Buy Vacant Land

Discussion in 'Superannuation, SMSF & Personal Insurance' started by mojorising, 10th Apr, 2019.

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  1. mojorising

    mojorising Well-Known Member

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    I am looking at possibly buying a block of vacant land.

    In order to buy it I would need to use the funds in my Super account (which are currently invested in shares through a managed fund).

    Does anybody know if this is feasible?
     
  2. euro73

    euro73 Well-Known Member Business Member

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    Last edited: 10th Apr, 2019
  3. Redwood

    Redwood Well-Known Member

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    Hi, review your trust deed and investment strategy, super is for the sole purpose of your retirement, if your strategy is in line with growing your retirement nest egg, then yes. That is land will be purchased with the objective of capital growth. Note it will most likely have no income.

    Be sure to update the funds investment strategy.

    Cheers Ivan
     
  4. Terry_w

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

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    With no income word the trustee be making a prudent investment?
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The investment strategy does need to consider a range of factors. A lack of income means a negative return (due to holding costs) and may in some cases be a concern if insufficient liquidity is apparent or the time horizon is highly uncertain. Little things too like who the acquisition is from may be important. A strategy that seeks to undertake a business enterprise may also be a concern eg subdivision and sale of the land. The investment strategy will need to be acceptable to an auditor and may be wise to seek their pre-purchase views on your specific strategy. . I have seen auditors qualify for land even where there is subjective apparent compliance.

    Capital growth also does not mean that the land would be sold and generate a capital gain. However the 10% vs 15% tax rate is less a concern. BUT, if the enterprise results in non-arms length income serious problems could eventuate too. This matter is one for legal advice form a super specialist. Consider DBA Lawyers - One of the best.

    I would be carefully checking all the audit and tax (legal !!) advice before committing. If the deal falls over with the fund facings costs there can also be a major concern.
     
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  6. geoffw

    geoffw Moderator Staff Member

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    For the experts here - are there implications if the lad is to be developed or built on in some way? Are there restrictions on what the SMSF can do in this regard? I vaguely remember something about using JVs for this.
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There can be a range of issues or there can be none. One that can be easily missed is the rule about acquisitions from a related party or even a contribution issue (The tax ruling considers things which add to the fund can be a contribution). Then are non arms length issues which can taint an otherwise OK arrangement and so on. With a "JV"care has to be taken as a "group" could occur and it and the members too could all be an enterprise etc

    Personal advice is essential. As a SMSF is a financial product it can mean credit advice, legal advice, tax advice, financial advice are all needed to some degree.
     
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  8. mojorising

    mojorising Well-Known Member

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    Thanks for the advice.

    There is no relationship between me and the current owners. It is arms length.

    The land is about $370k

    I currently have abut 200k in super and $170k in cash (outside the super fund).

    So the purchase would be partially funded by super and part with cash. If that means the entire property has then to be inside super that is OK with me.

    Or if it can be partially a super investment and partially a non-super investment that is also OK with me.

    Just trying to establish whether either approach is possible.

    There is no definite plans to build on it but I can either build or not build if either approach makes the purchase more feasible from the perspective of super-funding.
     
  9. Terry_w

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

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    Just because you can do something doesn't mean your should.

    What is the purpose in buying this land and specifically why in the SMSF and not another 'entity'?
     
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  10. mojorising

    mojorising Well-Known Member

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    ^Thanks Terry

    The only reason for using the SMSF fund is because that is where the money is and it cannot be accessed as cash until I am of retirement age which is still a few years off.

    An alternative would be to borrow the $200k but I would rather use the money I already have than borrow if possible.

    I know SMSFs can be used for property investments. The OP is really about the feasibility from a legal and financial transactional perspective of buying a piece of land using part SMSF and part cash, if anybody has any experience of this.

    And, considering that the land will have no income, whether that impacts the legal feasibility of such a transaction as a valid SMSF investment.
     
  11. Terry_w

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

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    There are several ways it could be done
    a) you and the SMSF trustee as joint owners as tenants in common in equal shares, or
    b) you could contribute your cash into super and then the SMSF trustee could buy it, or
    c) Trustee of a unit trust own the land with you and the SMSF owning separate units in the trust.

    But what do you intend to do in the future with the land and with your super benefits?
     
  12. mojorising

    mojorising Well-Known Member

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    Thanks Terry.

    I guess I will need to do some research into SMSFs as I do not know much about them.

    I did not know it was possible to dump a lot of money into an SMSF. I thought the yearly contribution rate was limited.

    Just looking for the simplest way to be able to use the super funds to buy the land.

    I will investigate the options you have outlined.
     
  13. mojorising

    mojorising Well-Known Member

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    Leaving aside the complexity of the land possibly being part super and part personal property I would like to understand the basic process and costs involved in taking invested funds from a regular industry managed super fund and converting it to an SMSF which is then used to purchase property.

    This would be more a plain vanilla enquiry to help me understand the basics before broaching the complexity of splitting ownership between a SMSF trust and my personal property as joint tenants.

    Is there an article or thread outlining how the basic version is done?
     
  14. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Taking a step back... regardless of the prospective purchasing entity... why do you want this land in the first place and what makes it a good investment?
     
  15. geoffw

    geoffw Moderator Staff Member

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    I believe that there is a cap.
    Contribution caps
    It looks to me as if the amount you're suggesting would be under the non concessional cap.

    But I'd be wondering if your approach is a good one anyway. You have costs in setting up an SMSF, and you have the costs of running it. These can be non trivial, especially with the requirement that the fund be audited annually. You're also giving up an income stream from within your current super fund.

    Advice has been suggested already. It would be very much worth while spending some money on professional advice. However, some advisors would be strongly advising against real estate just because it's outside their comfort zone.

    Is getting a loan really that bad? I'd be suggesting that it's far easier to initiate, gives you far more flexibility as to what you do with the land, and leaves your super fund (tax free) income intact. If you do something with the land and it produces income, then the loan repayments may then become deductible (check with a professional). It will probably be much easier to get a loan to develop it, further down the track.
     
  16. Terry_w

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

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    If you don't understand the basics you should be doing some serious research
     
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  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Option (c) may even allow some negative gearing. This could avoid the contributions issue too and defer matters. In 2 years the SMSF could be the sole unitholder. Loads of options that need to consider the whole of the issues. Thats why specific advice is important as it considers all the associated issues
     
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