Westpac launches SMSF lending
Westpac is one of the first of the major retail banks to enable self managed super funds (SMSF) to borrow to invest. This is in line with the recent changes to the legislation that occurred in September 2007.
Westpac will lend to a SMSF to purchase an investment property via a property trustee. They then hold the property in trust until the loan is repaid.
Qualifying SMSFs can now finance the acquisition of residential or non-specialised commercial property for investment purposes.
The legislative changes have relaxed the borrowing restrictions to allow superannuation funds, in particular self managed superannuation funds to acquire an asset by payments over a period of time through a limited recourse loan.
This means that a SMSF can acquire property worth more than its available funds through multiple payments over the long-term.
SMSF assets are secure as the lender does not have recourse to SMSF’s assets in the event of default. The super fund receives the income and capital growth even if the property has not been paid off. Furthermore, the fund can use income from the property to help pay off the loan.
However, this approach may not suit every SMSF and customers should seek their own professional financial, legal and taxation advice.
As part of our commitment to support business owners and those that control SMSF’s, we have undertaken significant steps to specifically deliver to the needs of the market place as a result of the changes.
SMSFs have grown faster than the total superannuation industry with 30% per annum growth rate for FY2006-2007.
Westpac believes that the SMSF segment of the superannuation industry will continue to grow above the total superannuation industry average and these legislative changes will accelerate growth.
The SMSF segment of the superannuation industry is the second largest with $286bn in assets as at June 2007 representing 25 per cent of the total superannuation assets (Source: APRA Quarterly Superannuation Performance Report June 2007).
Case Study
Suppose your SMSF has $150,000 in the cash account. As the SMSF trustee, you want to buy an investment property worth $350,000. A nominated property trustee buys the property on behalf of your SMSF. The $150,000 is used to make an initial payment after allowing $25,000 in stamp duty and acquisition costs for the property. The shortfall of $225,000 is funded by a limited recourse loan, using the property as security.
The trustee arranges for the property to be leased to any unrelated party and the rent, together with other SMSF income and/or member contributions are used to make instalment payments. Once the loan is paid off, the SMSF trustee can request legal ownership of the property to be transferred to the SMSF.
The information provided in this case study may vary according to a person's individual situation and customers should seek independent financial and taxation advice to determine whether this approach meets their investment needs.
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