Unit Trust Loan With SMSF As Unit Holder

This page is for borrowers who need a unit trust loan to purchase property, where their self-managed superannuation fund (SMSF) is the unit-holder.

How much can I borrow?

• Borrow up to 75-80% of the property value to purchase a standard residential property for your SMSF.
• Borrow up to 75% to purchase a non-specialised commercial property like an office unit, warehouse or factory.
• Interest rates are slightly higher for SMSF mortgages, but the margin can vary significantly between lenders and depending on the strength of your application.
• SMSF low doc loans are available (select criteria applies).
• SMSF bad credit loans are available, but borrowing limits apply.
• SMSF construction finance isn’t available.

There are only a handful of lenders that will consider SMSF loans via a unit trust structure.

Luckily, we’re SMSF loan specialists.

Please call us on 1300 889 743 or fill in our free assessment form to discover if you qualify.

Am I eligible for an SMSF loan?

Like a standard SMSF loan, there will be a few areas that lenders will assess carefully, including:

• Benefit to the loan guarantors: The beneficiaries of the SMSF must be the same as the directors of the trustee company of the unit trust, so there is a benefit for the guarantors of the loan.
• SMSF liquidity requirements: Some lenders have strict liquidity requirements which is essentially how much of your trust balance is leftover after purchasing the property.
• In-house assets test: The property purchase must not breach the in-house asset ruling set out in the Superannuation Industry (Supervision) Act 1993 (SIS Act).

What documents do I need to provide?

• A certified copy of the trust deed for both the SMSF and the unit trust.
• A certified copy of the custodian trust deed.
• The last two years financial reports and income tax returns on all related entities supported by the Australian Taxation Office (ATO) Tax Agent Portal.
• Fund income tax and regulatory return.
• For newly-established super funds, evidence of ability to meet stated super contributions such as personal tax returns and/or payslips.
• The latest super fund statement for any fund/s you were a member of prior to the establishment of your SMSF.
• The last two years audited SMSF annual returns.
• An accountants letter confirming the company trustee is not trading and that the property purchase does not breach SIS Act in-house asset rules.

Is the SMSF or the unit trust the mortgage holder?

The loan is made out to the trustee of the SMSF in its capacity as a trustee with the security custodian as mortgagor.

The lender has limited recourse and, if the loan is in default, they have no ability to claim the other assets held by the trust.

Some lenders require guarantees from the members of the superannuation fund.

In saying that, the guarantee is modified to ensure guarantors do not have recourse to the super trustee in the event that there is a default on payment under guarantee.

Other lenders do not require personal guarantees from the members of the superannuation fund, particularly if you’re borrowing 60% of the property or less.

The benefits of this SMSF property investment strategy

What is the in-house assets ruling?

An in-house asset is defined by the Australian Taxation Office (ATO) as:

• A loan to, or an investment in, a related party of your fund, with “related parties” including the fund’s members, relatives and non-individual entities such as companies.
• An investment in a related trust of your fund.
• An asset of your fund that is leased to a related party.

Under the SIS Act, in-house assets cannot be more than 5% of your fund’s total assets.

This may seem like a low investment threshold, but it was implemented to restrict the use of fund assets by related parties to protect the retirement benefits of members.

You will breach the in-house assets ruling (SMSFR 2009/4) if the market value of the property you want to buy exceeds 5% of the total SMSF fund or the value of the fund’s assets fall to the extent that the property value exceeds this asset test, whichever comes first.

SMSFs can instead acquire property via a trust unit

Instead of purchasing a property directly through your self-managed superannuation fund, the SMSF can purchase units in a unit trust.

The trust actually purchases the property and holds the title.

By purchasing properties via the unit trust, this allows the SMSF to legally circumvent (an exemption) the general rule prohibiting it from acquiring assets from related parties.

That’s because unit trusts are so-called “non-geared entity” which means the units acquired by the SMSF are not defined as an in-house asset.

Bear in mind, investments acquired through a non-geared entity like a unit trust must meet other tax rules under the SIS Act.

This should not be considered financial advice: Tax rulings can change on a regular basis. It is essential that you seek financial advice from a qualified accountant that specialises in SMSFs to ensure that you adhere to the rules set out by the Australian Taxation Office (ATO).

What are the benefits of a mortgage broker?

Many lenders pulled out of the SMSF market entirely in 2018 and those that do operate in this space assess applications via their commercial or business banking department.

This means there can be huge differences in how much lenders will allow you to borrow and how much they will charge you in term of interest rates and fees.

We can help you compare SMSF loan options or even help you refinance your current SMSF loan if you’ve already been knocked back.

There are SMSF lending solutions, and we know where to find them.

Please call us on 1300 889 743 or fill in our free assessment form to speak with one of our expert mortgage brokers today.

We understand complex SMSF loan structures, such as purchasing property via your trust to reduce your tax bill, for asset protection purposes or to other otherwise rapidly grow your retirement savings through property investment.