There has been significant press around Self Managed Superannuation Funds (“SMSF”) and Australian Property investment recently. It is arguable that every bank is jumping on the SMSF Property bandwagon with every bank now marketing a SMSF loan product.
Regardless of whether you choose to use a third-party loan, a related party loan, or a combination of both, you will be well served by using the services of Redwood Advisory to ensure you are in safe hands and to structure the transaction in an efficient, timely and compliant manner.
Many Australians are unaware of the benefits of related party loans and generally choose the most expensive option and engage a 3rd party lender. This article aims to outline the advantages and disadvantages of related party loans.
Firstly, lets consider the advantages of Related Party loans:
• You can use your available equity on property owned outside of super to on-lend to a SMSF instead of obtaining a loan from a third party. As compared to third party lenders, there are reduced upfront costs such as application and legal fees charged by major bank lenders which can incur a cost of up to $5000
• Lower interest rates than third party borrowing with the ATO now approving of zero per cent interest rates for related party loans which means the individual receives no taxable income from the arrangement and pays no tax.
• Simplified SMSF loan documentation and a lower interest rate than third party lenders
• Loan repayment terms are more flexible and easier to modify.
Like all structures it’s important to identify the disadvantages, which include:
• It is imperative to receive advice during the process which may be costly including structuring and drafting of the legal deed
• Opportunity cost of using your cash outside super
The content has been prepared without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice.