Paul Glossop: Welcome to Pure Property Investment one on one. Today we are joined by Anthony Pears. Anthony is a partner with Integra Financial Services. Guys, with I guess the rise and rise of Self Managed Super Funds and potentially purchasing property within Self Managed Super Funds, I thought it’d be important to talk to someone such as Anthony who’s got a lot of experience in that space to talk about what are some of the actual restrictions that potential investors need to understand before they go through all of the paperwork and the trials and tribulations of setting up a Self Managed Super Fund to therefore buy or potentially buy a property because there are a lot of restrictions, a lot of pitfalls that people need to understand. There’s also a lot of upsides but I think key to that is understanding the information and having a good partner in that space before you go out and actually invest.
So Anthony if you don’t mind sharing with our viewers a little bit more about the potential restrictions in buying property in a Self Managed Super Fund.
Anthony Pears: Thanks Paul. So, what we first need to realize with superannuation, and that includes Self Managed Super Fund, that you’ve got to make the sole purpose test. Now the sole purpose test means that the Super Fund is there to provide a retirement benefit and/or a death benefit in the event of death. Also, you’ve got to make sure that your trust deed allows you to do this investment property and purchase and borrowing. So, it may be a case that you have to do an updated trust deed.
The other main thing is that that property has got to be at total arm’s length. So, what we mean by that is it cannot be used for any member, trustee or associate for their own personal benefit. That’s the major one. There is one area where you can get around that and that’s for business real property as well.
So, the main thing is that it’s at arm’s length; so you can’t use it as a holiday house, you can’t let your employees use it, you can’t let your friends or relatives use it either. So, when you talk about arm’s length, and for a property itself, it’s got to be on real commercial terms. It may be like an investment unit, where the management is run by the real estate agent in that particular area. The rent goes obviously back to the Self Managed Super Fund; the Self Managed Super Fund pays all the expenses.
The other technical area is that when you purchase a property through that limited recourse borrowing, one of the other major restrictions is that you cannot use any of those borrowed funds to improve the property. It does get very technical because an improvement — what does an improvement constitute? An improvement could be something like replacing a toilet in a bathroom if the toilet gets broken. You could argue that’s not improvement, it’s just replacing the damaged fitting but for the ATO’s point of view, that’s an improvement. So there are various restrictions in that sense too so you have to be very, very careful. You have to make sure that it does meet with that investment strategy of your Self Managed Super Fund. That has to be reviewed annually too.
Paul Glossop: So. there’s a few key parts there I think that we discussed in the sense that’s making sure that you as part of your audit, you do a review of your investment strategy regularly. I think it also speaks volumes to the probably really overarching intention of this property; making sure that you buy the right asset is absolutely key in this nature and I think, I was hearing a lot of what Anthony has outlined there with certain things you’re restricted to be able to do, improve, not improve etc. You can see that it probably therefore would put in brackets the certain types of properties which would be the right property for a Self Managed Super Fund.
Outside of that there’s obviously different aspects; from a business perspective that’s probably a different kettle of fish altogether where you’re buying an office to run a business out of etc. But long and short of it, I think it sounds like really; Self Managed Super Fund investing from a property perspective, don’t try to do it to find a cheeky way to get around the ATO and potentially buy a house that you can live in very, very cheap or cheaply and plan that into your retirement assets as well. Because they’ll get you and they’ve got more systems in place than we know what to do with. So, I think ultimately it needs to fit in an objective, it needs to be something that is going to be at arm’s length as you said, and really the sole intention of that property is to make money over the duration.
Again guys, you would have noticed as part of that discussion that there is a lot more to it and “oils ain’t oils”. So, to speak with an expert when it comes down to really what you need to know, and what are the right investment types, what types of funds do you need to get set up in the initial stages, the different structures, it’s worthwhile speaking to someone like Anthony. His contact details are below at the bottom of the screen. You can also talk to us about investment types, property types that can go into those Self Managed Super Fund portfolios when that time does come. So, you can contact our team at the bottom of the screen as well and no doubt we’ll catch up with you very soon.