SMSF

Buyers sign a single contract with the developer, covering both the land and building component. A deposit is paid upon contract signing, and then the balance of the property price is paid at settlement. Although this is more common among apartment and townhouse purchases, there are some companies that will facilitate a one part contract for House & Land packages.

There are a some risks that can accompany using your SMSF (Self-Managed Super Fund) to invest in NDIS property – one being cash flow. Your loan repayments will come from your SMSF. So you need to ensure there is sufficient income into your SMSF (including NDIS Rent from the tenant/s) to make the repayments.

An SMSF wholly in the accumulation phase will pay capital gains tax (CGT) on the fund’s annual net capital gain. The net gain is treated as income for tax purposes so it will be taxed at the same rate as other income in the fund – that is, 15%.

There are some ongoing costs that come with using your SMSF to purchase a property. These include:
-Property management fees
-Accounting and auditing costs
-Building insurance, council, and water rates of your investment property
-Body Corp, if relevant
-Business registration of your SMSF with ASIC.

When you retire, you have two options.

1) Continue to receive rent on your investment property as your pension-based income, or

2) Sell the investment property and once you’ve paid any potential remaining debt on the property, use those funds as your retirement income. You need to reach the preservation criteria at the age of 60- 65 to sell the property in order to not pay capital gains tax.

The rules and regulations around using your SMSF to purchase NDIS property can be quite complicated.

In short, using funds from your SMSF to purchase an NDIS investment property is not the same as a regular SMSF property investment loan.

The major consideration is that you can only make the purchase through a single contract. NDIS House & Land packages are normally 2-part contracts. We can refer you to SMSF funders who will do one-part contracts for House & Land packages and we help facilitate this as a property advisor only. We recommend if looking to buy an NDIS property within your SMSF, you have at least 33% of the House & Land contract price, plus additional costs such as stamp duty and holding costs etc. This would amount to over $200,000 as an SMSF balance minimum, ideally at least $300,000.

Major considerations when it comes to determining what properties can be purchased as an investment property through your SMSF are:

Location and Demand
The property you’re considering must be in an area with high rental demand – this is typically considered anywhere within a 50-kilometre radius of an Australian capital city or a 35-kilometre radius of a ‘major’ city. A major city is considered to have a population of 100,000 people or greater. The areas that fall into these categories typically have a vacancy rate of 1% or below, meaning that the rental demand is there for investors to purchase in that area.

The Bank Has To Approve
When purchasing a property through your Self Managed Super Fund, as with any property, you need to talk to the bank. In terms of getting the bank’s approval, the property ideally is as new as possible, because:

The Property Needs To Be Positively Geared
The property should be cash flow positive, meaning that the income from rent should be higher than the outgoings on the property. At the very least, the property should have a neutral cash flow, meaning the incomings and outgoings are relatively even. This is generally not an issue with an NDIS property given the high rental yields.

No personal gain
The last criterion to consider is that you can’t see any personal gain from your investment property. This includes:
-You can’t live in the investment property, or install tenants who are known to you;
-You can’t complete any repair or maintenance work, this can only be done by licensed third-party tradespeople;
-You can’t organise renting the property, this must be done by a licensed third-party property management team – the SDA Provider;
-And finally, you can’t develop or improve the property – you can maintain the property to its current standards, but you can’t undertake any renovations.

We recommend having around $300,000 in your SMSF. You need to ensure you have a large enough deposit in place to cover initial fees and operating costs involved in the purchase and set up of the NDIS property.