DIY SUPER FUNDS & Residential PROPERTY
In the new financial year, many DIY super funds will try to expand the diversity of their investment strategies. Including a residential property in a fund’s portfolio is beginning to be a popular choice. There are a number of rules and dangers, however, that potential investors should be aware of.
Most importantly, a fund cannot buy a property owned by a fund member or someone related to that member. Although a fund can acquire investments from a related party, such as shares, commercial property or units in certain managed investment trusts, it cannot purchase a residential property from a related party.
Some funds might wish to strategise and get around this prohibition by creating a unit trust. A unit trust is an arrangement whereby money from different investors is pooled to buy an investment. The value of the investment is converted into units which are issued to investors in proportion to the money they invested.
A family home, or residential property owned by a fund member, could be invested in by a unit trust. The fund will run into problems however, if it is entitled to more than half the units. Under super rules, where an asset is an in-house asset, no more than 5% of the market value of the super fund’s assets can be committed to the investment.
There are severe penalties if it is established that a unit trust was used to circumvent the prohibition on acquiring assets from related parties.
Investing in property might still be a good super fund strategy and it is worth considering the range of properties available. If a fund is going to diversify in the new financial year, be sure to get professional advice and ensure that the property investment does not break super rules.
This article is for guidance only, and professional advice should be obtained before acting on any advice herein. Neither the publisher Leenane Templeton The Self Managed Super Specialists nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication. See our financial planning website for further information. This article relates to Australia, NSW and does not take into account any legislative or other changes made after 1 April 2011.
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