Loans From SMSF Members Or Their Families

Does your SMSF need additional funds to purchase a residential or commercial investment property?

Consider a loan from the SMSF members or their families!

The extra finance can help your SMSF complete the purchase and cover costs such as stamp duty and mortgage insurance.

Please read on to find out more.

Lending to your SMSF

Are you part of a SMSF that wants to invest in property? Some members will have sufficient funds available to lend to their super funds, however others will not.

If this sounds like your situation you may still be able to borrow against your home or other properties and on-lend this money to your super fund.

This way you can combine bank finance with your own personal funds to meet the banks lending requirements and increase your SMSF’s borrowing capacity.

We can help members and their families arrange lines of credit secured over properties held outside of superannuation. This will enable them to raise sufficient monies to lend to their super funds.

Terms of the loan

For loans of this nature, the loan to the super fund would generally be on the same terms as the loan from their bank.

This should also have a neutral effect from a taxation and cash flow perspective as the repayments received from the super fund should be equal to the payments required to be made to the bank.

Are there any restrictions?

As the member is effectively acting as the lender, there are no restrictions as to how much can be borrowed by the SMSF.

The member takes out the loan using their personal property as security. The property in the SMSF is not being used as security for the loan

This means that property can be purchased by the SMSF using 100% borrowed money, provided this is in accordance with the documented investment strategy of the super fund.

What are the advantages of this arrangement?

There are various advantages associated with obtaining extra finance through a family member:

  • You can fund the purchase, plus have extra cash to cover any other associated costs that arise.
  • The interest rate that the SMSF pays on the loan is at standard market rates, making it a much cheaper option.
  • There is increased repayment flexibility as the SMSF can make lump sum payments.
  • Any interest that the members or their families receive will be classed as taxable income, which will attract a tax deduction.

Example case study

Tiffany and Paul are in their forties and have approximately $150,000 in their Self Managed Super Fund.

They want to purchase a commercial property valued at $400,000 using their SMSF, however they do not have sufficient funds to meet the bank’s serviceability assessment.

They also need funds to cover the costs associated with the purchase including stamp duty, conveyancing and legal costs, title searches and site inspections.

Together, the couple have $30,000 of their personal funds saved.

They decide to lend their super fund the money on a limited recourse loan arrangement. They now have enough funds to complete the purchase.

To find out how we can help you with your SMSF loan, please enquire online and one of our mortgage brokers will contact you to discuss your situation.

What else do I need to know?

The property provided by the members as security for the loan cannot be subject to any additional registered second mortgages or charges.

The bank that provides the finance is the only entity that is allowed to do this. Please speak to us for more information.

Can I use a family trust?

It may be possible to use a family trust as a vehicle to obtain funds, rather than through the individual members.

It is very important that you select the appropriate structure for the loan to your SMSF. This is especially the case where the member financed loan is very large.

In this case, you need to speak to a professional who can advise you on the most appropriate structure for your situation, as well as one that will provide you with numerous tax advantages.

Speak to us today!

We can help you set up this financing arrangement so that your SMSF can borrow funds to purchase a residential or commercial investment property!

Our expert mortgage brokers know which lenders offer the best loan product for your situation.

Please enquire online or call us today.

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.