SMSF Loans

How Much Can I Borrow?

We can help you to apply for:

• Standard SMSF Investment Loans: Up to 90% of the property value for residential property.
• Commercial property: Up to 80% of the property value for non-specialised securities.
• Discounts: Most lenders add a margin to their normal residential loan rates for SMSFs; however, these margins vary significantly.
• Low doc (no income evidence): Up to 80% of the property value. However, SMSF low doc loans are very limited and have many restrictions.
• Bad credit: Up to 80% of a residential property or 75% of a commercial property with an SMSF bad credit loan.
• Standard investment loan rates may be available: Your SMSF structure must meet certain criteria.
• Unusual security or income types: There are specialist lenders that can help.
• Construction finance: SMSF construction finance isn’t available.

Lending policies for SMSFs vary among lenders, particularly in the way they assess your ability to repay the loan.

Please call us on 1300 889 743 or fill in our free online assessment form to speak to a mortgage broker who specialises in SMSF loans.

How Will The Banks Assess My Borrowing Capacity?

The main hurdle most SMSF loan applicants encounter is proving the trust has sufficient income to support the loan.

Typically, the banks will look at the current income of the trust based on its previous two years tax returns and will then assess whether that income plus the proposed rental income will be sufficient to service the debt.

Some lenders can also use the income of members or beneficiaries of the SMSF to support the application if a personal guarantee is provided.

You can use our SMSF borrowing power calculator to see how some of our banks would assess your situation.

Are There Any Restrictions?

There are restrictions on SMSF loans which prevent some transactions from taking place. For example:

• Construction loans are not available. The SMSF is able to pay for renovations out of its own funds, but can’t use the borrowed additional funds for this purpose.
• Buying a property in your SMSF that you intend to live in as a home is not allowed (owner-occupied business premises are acceptable).
• Selling a residential property to your SMSF, that you or a related party owns is not allowed (commercial property is acceptable).

You may also wish to speak to your accountant or financial planner to find out if your intended transaction complies with lender rules and government regulations.

How Can I Get Approval?

Each bank has come up with its own way of assessing SMSF applications, so if your bank can’t help you, then please contact us. Our mortgage brokers who specialise in SMSF and limited recourse loans will help you find a solution.

Bare Trust Mandatory For SMSF Loan

In a typical SMSF borrowing arrangement, the lender lends to the SMSF trustee who doesn’t actually hold legal ownership of the property. This is known as borrowing money.

One of our lenders will actually lend to the trustee of the bare trust or holding trust, which means you can qualify for higher LVRs and lower interest rates. This is known as maintaining a borrowing.

In order to meet SIS Act compliance requirements, there needs to first be an agreement between the SMSF trustee and the trustee of the bare trust.

You should speak to your accountant when considering entering such an agreement.

In addition to this requirement, the bare trust trustee must be a company or company director.

When assessing the trustee’s capacity to borrow, the lender will use the director’s income or the trustee company’s latest profit and loss statement, including any rental income.

Please call us on 1300 889 743 or complete our free online assessment form to speak with one of our mortgage brokers about the benefits of maintaining a borrowing versus borrowing money for your SMSF.

Why Use A Mortgage Broker?

An SMSF loan is a complex loan, and you don’t have direct access to lenders, so it’s better to have a professional to help you obtain these loans. A mortgage broker specialising in SMSF loans will be able to file an application assessing your situation that increases the likelihood of getting a loan.

Many lenders pulled out of the SMSF market entirely in 2018. Major banks don’t give SMSF loans; non-bank lenders provide this type of loan.

For a standard home loan, there are only small differences among different lenders. However, for an SMSF loan, there are big differences in fees and interest rates.

In particular, many major banks process loans for SMSFs via their commercial or business banking department. These parts of the banks have much higher costs than the normal home loan department, and as a result, they charge more for their loans.

In addition to this, not all lenders can provide an offset account with your mortgage, which is critically important if you have a lot of cash in your SMSF.

A 100% offset account is a regular cheque account, except that it is linked to your home loan account. The lender only charges you interest on the balance of your home loan minus the balance of your offset account. The benefit of this is that you can pay off the loan much quicker and also save a lot of money in interest.

We know which lenders have offset accounts for SMSF home loans and can help you compare SMSF loans as well. Please call us on 1300 889 743 or fill in our free online assessment form and one of our expert mortgage brokers will help you get an SMSF loan with a lender that best suits your needs.

What To Consider Before Setting Up An SMSF

Setting up an SMSF is a big decision requiring lots of thought and thorough research.

Before setting up an SMSF, talk to a broker first and sort out the finance.

Brokers can contact the bank to assess your situation, assuming you will set up an SMSF. Once they approve your loan, you can set up an SMSF account.

Further, determine whether it meets your needs by assessing the following concerns:

• Will it save you money?: there are many fees involved in managing an SMSF. Consider how much you actually have as retirement savings and whether it is financially sound to set up an SMSF. You can start by comparing the accounting and audit fees costs of an SMSF against the 1-2% charged by a standard retail super fund.
• What benefits will you lose?: you are likely to have many benefits and options included in an employer-provided super fund. However, to receive the same benefits under an SMSF, you would have to organise these yourself. The most common benefit is cheaper life insurance. However, you may find that many public super funds can transfer the insurance at the same rate into your own name.
• Can you invest your super funds effectively?: when you are part of an employer-provided super fund, the money is managed and invested by professionals with specialised knowledge. If you cannot make good investment decisions, you will not be maximising the returns on your funds or managing your wealth effectively. Generally, SMSFs are best suited to those who have particular personal investment experience.
• Losing funds: If you were to lose any money, there would be no way to reclaim those funds. This is unlike the compensation available under other super funds.
• Are you well informed and do you have the time to manage the SMSF?: you need to know about all the legislation, regulation and taxation requirements you are expected to meet. It is also important to have knowledge of the investment market. If you believe that you could not effectively manage your super fund, then you need to speak to experts and seek specialised advice. Accountants with specialist SMSF knowledge can assist you, but the responsibility ultimately falls upon the trustee.

Setting Up An SMSF

There are several components involved in setting up a Self-Managed Super Fund. Every SMSF needs to be made in accordance with regulation and applicable legislation.

As with any new entity, there is also the Australian Taxation Office (ATO) reporting requirements.

If you are thinking of setting up an SMSF to manage your superannuation savings, you need to:

• Choose a name for the fund and speak to your accountant or adviser to help you set up the correct trustee and trust structure to fit your needs.
• Prepare an investment strategy.
• Apply for the trust to be regulated, obtain your Tax File Number and Australian Business Number (ABN). These three applications can be made at the same time.
• Establish a bank account. Many banks will require you to provide them with certified copies of the signed trust deed, tax file number certificate and business number certificate before you open an account.
• Contact your old super fund to rollover your current member balance. This can take from 2 weeks to 2 months, depending on the fund. You will most likely be required to forward them certified copies of the signed trust deed and a letter from the trustee.

SMSF Features

When you set up an SMSF, you must manage it according to the rules set out in your trust deed.

Since the purpose of an SMSF is to provide retirement benefits to members, the rules of the fund must reflect this.

The following is a list of important facets of an SMSF:

• Management of the fund’s investments: all investments should be managed for the benefit of the fund members, and personal financial affairs or interests should not be incorporated in any way. These must be kept separate. The ATO has strict rules concerning asset ownership with all assets required to be held in the full legal name of the SMSF.
• Contributions from fund members: these can be accepted, but there are some restrictions in place, depending on the age of the member and their contribution caps. These caps change every year, and there are penalties for over-contributing, so it is best to carefully plan any extra contributions.
• Administration: If you are the trustee of the super fund, you will have to ensure that you meet all reporting requirements and maintain records of the fund’s undertakings. An accountant can assist you with the annual income tax, reports and audit.
• Access to the fund: members will be eligible to receive super funds once they reach the ‘preservation age’, retire or meet any other conditions of release. Generally, it is very hard to touch your super before reaching the required age unless you are experiencing severe financial hardship.
• Tax: super income is generally taxed at a rate of 15%. However, higher rates may apply if you receive “special income” from investments in entities related to you or if you receive a notice of non-compliance for breaching the super fund rules.

Rules Relating To Self-Managed Super Funds

There are special rules governing how super funds must be run:

• The fund must always be run with the sole purpose of providing retirement benefits.
• You cannot use an SMSF to gain early and improper access to superannuation.
• SMSFs can now borrow as long as certain requirements have been met.
• The SMSF trustee can either be a company owned by all members or all members as individual trustees.
• An SMSF can have between one to six members.
• The SMSF must always maintain and follow its investment strategy.
• The trustee must ensure that the SMSF complies with the Australian Taxation Office (ATO) regulations and guidelines.

Tips For Managing An SMSF

Here are a few things to remember when starting an SMSF:

• Make sure that you fulfil all your administrative obligations, including record keeping and taxation.
• Enlist the services of an auditor as required by the ATO.
• Prepare all financial statements and maintain good records.
• Know the law so that you can comply with the ATO and government regulations.
• Never enter into any commercial or financial arrangements that involve your SMSF without first seeking professional advice.
• Do not access your SMSF unless you have met all conditions. It is illegal to prematurely access your super fund, and there can be heavy penalties for the fund member and the fund.

Download Our SMSF Loan Document Checklist:

On 31 July 2018, Westpac and its subsidiaries St George, Bank of Melbourne and BankSA, stopped offering SMSF loans.

Luckily, we have a number of other lenders on our panel that you can apply with so you can purchase a residential or commercial property within your self-managed super fund.

SMSF Loan Checklistarrow_downward

Speak To A Professional Finance Adviser

To ensure that you are complying with all of the regulations, speak to a tax agent who can offer you specialist taxation and financial advice.

Make sure you read all information available and access the relevant resources so that you are fully informed.

You are responsible for your SMSF, so it is important that you adhere to the ATO rules.

Getting the right advice means that you will have the appropriate structure for your SMSF trust loan, minimising any legal issues.