If you want more control and flexibility over your investment decisions, taking the help of Self-Managed Super Funds (SMSF) is a great idea. It is great for investing in real estate and property, which reminds us of a question — can you buy vacant land in Australia with a self-managed super fund?
Fortunately, you can use an SMSF to buy a property or vacant land in Australia. However, buying a property with SMSF is regulated under a Limited Recourse Borrowing Arrangement (LRBA). LRBA comes with a set of rules like funds can’t be used to develop an asset. Hence, buying vacant land with SMSF is an uncommon investment strategy, but you can try and see how it works. It can be very daunting when it comes to understanding the rules of SMSF. Under such conditions, it’s better to take advice from an SMSF or LRBA loan expert.
Buying A Block of Land with SMSF
If you already have an established SMSF, you can proceed with buying a block of land. The funds allow you to directly invest in property, so purchasing a block of land is still possible. Please note that the block of land should be benefiting the fund trustees. This is where the ‘Sole Purpose Test’ comes in the process. The test ensures that trustees of the SMSF are making decisions that are beneficial for the Fund trustees. This prevents any misuse of the SMSF for buying a block of land.
How to identify vacant land?
Identifying vacant land in financial terms is the period in which an entity is holding the land if it does not contain a substantial and permanent structure. A substantial and permanent structure is significant in size and value, not similar to the purpose of another structure, does not support the use or function of another structure, and is fixed and enduring.
However, if the land has a substantial and permanent structure, but the premises are not lawfully occupied or rented by the owner, then the land is considered vacant. In total, if a newly built or renovated structure is waiting for approval or hasn’t been given on rent, it is considered ‘vacant.’
Can an SMSF borrow money to buy a property?
SMSF can borrow money for buying property. However, keep in mind that you need to follow certain conditions when purchasing property via SMSF. These include:
- The borrowed money should be used to attain ‘Single Acquirable Asset.’
- The funds must be borrowed under an LRBA or Limited Recourse Borrowing Arrangement.
- The purchased asset is held in a ‘Bare Trust’ or a ‘Property Trust.’
- The borrowed funds can be used for repair and construction.
Vacant Land Tax and Deductions
If the land you are trying to buy using SMSF consists of residential premises, you need to wait for the final deal until you get a lease, license, and some more documents for deduction of expenses.
A bill released in 2019 under Treasury Laws Amendment brought several changes in a tax deduction for vacant lands. Under this bill, taxpayers with specific circumstances will be allowed to claim deductions for vacant land.
To learn more about using SMSF for buying land in Australia, consult with an SMSF Loan expert.
