SMSF borrowing still not for everyone
Although the Australian Taxation Office has recently provided clarification and additional flexibility regarding the requirements around borrowing to invest in property within a self-managed super fund, MLC Technical Services is reminding advisers that the strategy will still not suit all SMSFs.
There is likely to be increased interest in the strategy from clients, particularly with the attraction from a tax perspective, but taxation, diversification and liquidity issues still need to be considered, said MLC's head of technical services, Gemma Dale.
One of the main areas people still need to be cautious of is taking out a substantial loan, because with no guaranteed tenancy an unoccupied period could create great financial stress - particularly given you can't use funds from outside of the SMSF to service the loan, she said.
If you can't rent out the property or service the loan from within, the fund the member may be forced to sell it, she added.
It's still preferable to have a diversified portfolio within a SMSF, that way any risks will be offset by other assets within the fund, Dale said.
"Advisers need to consider a wide range of variables. For example, whether alternative sources of finance are available, if the SMSF will have the capacity to fund the borrowing arrangement and whether the asset will be negatively or positively geared," she said.
"There are some big changes happening in the industry, and it's more important than ever for advisers to have the support of technical specialists who can help them navigate the change," she said.
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