An SMSF is a special type of trust which allows people to invest their superannuation amount according to their own choices. A client becomes the trustee as an individual or as a company and controls the assets in that fund.

The existing or new employer still contributes to the same account and the client can make additional contributions on its own.

SMSF can be used for retirement planning or by investing in property.

Guidelines

you will need to

• Set up SMSF with your accountant
• Set up Trust Deed

Is SMSF allowed to get a loan?

SMSFs have to go through various obligations in order to borrow money.  Lenders are restricted and big banks hesitate to deal with it any more.

Some of the rules a trust must follow in order to get qualified are:

• The loan can be only provided if SMSF can be eligible to buy an asset if it got enough funds.
• The SMSF trust has custody and owns the asset.
• The SMSF can own the asset and hold the title soon the loan is repaid.
• SMSF trust cannot hold the lender not to sell the asset in case of default.

SMSF borrowing capacity?

• Standard SMSF Investment Loans can borrow Up to 70% of the property value. Some lenders had been lending 80% but in 2019 there are only a few lenders left.
• Commercial SMSF loans can borrow up to 75% of the property value for the non-specialized property.
• Low doc. Most of the lenders do not offer Low Doc loans without any evidence of income. The lenders who offer do have many restrictions in place.
• Low Credit ratings SMSF can only borrow up to 60% to 70% of the property.

Income and deposit

The income criteria are the same for SMSF loans. There must be sufficient income in the trust to support the repayments.

The income of the trust is derived from on its last two tax returns. 80% of the proposed rent of the property can also be added to the income for serviceability.

The income of members or beneficiaries of the SMSF can also be used by some lenders. It can help to support the application. The personal guarantee from the members have to is provided.

are SMSF loans as a standard investment loan?

SMSF loans are a lot different from normal investment loans. There are a lot of restrictions such as:

• SMSF loans are not for construction.
• Only a few lenders do refinance of SMSF loan.
• Only commercial property can be sold to fund the other investment in SMSF

Low deposit or standard SMSF loans

There are no more Low deposit SMSF loans. During the last few years,  banks are more protective when it comes to SMSF.

The deposit of a minimum of 20% is required. In case more deposit is required, the amount from the savings account can be transferred into the SMSF account and can be used.

Regulations

The SMSF should follow regulations such as but not limited to:

• The SMSF should have the sole function of providing benefits after retirement.
• SMSF cannot be used to gain premature or improper access to superannuation.
• SMSFs should comply with all legal requirements at all times.
• All four individuals can be the trustee of SMSF if there is no company.
• An SMSF can be formed with at least one to four individual members.
• The trustee is responsible for SMSF to follow the regulations and guidelines set by ASIC and ATO.

For more information on SMSF loan. Please contact us