One of the most common SMSF investment strategies is real estate purchase. It’s a rapidly growing sector here in Australia, and a lot of people are getting great returns from it.However, as Australian properties are more expensive than ever and finding tenants willing to pay rent which will be profitable for the landlord is hard, many Australians opt to invest in overseas properties.
The great thing about SMSF is that it’s extremely versatile, and it allows you to purchase SMSF overseas property. On average, properties in the US cost significantly less than in Australia, while the rental yield is higher. This alone is reason for a lot of Australians to invest in SMSF overseas property. In this article, I’ll give you some guidance on how you can get the process down to a T.
SMSF, just like all superannuation funds, has always had the option to invest in property. The big change is that since 2007, the federal government allows SMSFs to use a special type of structure in order to do so, which means that under certain circumstances, you might not need the full buyout price to invest in property. Generally, you can invest in all types of property: direct Australian property (commercial, rural, residential and industrial), indirect (managed property funds and listed property trusts) and overseas property.
Anyone considering any type of property investment through an SMSF should look for professional advice, especially if their strategy is particularly complex. In that case it’s best to talk to the experts at ATO. Generally, there are no special regulations when it comes to investing in overseas property, but some of the issues that can arise include:
- The fund’s approved accountant may need special documentation to confirm the ownership and existence of the asset
- Documentary evidence that the overseas property is indeed owned by the SMSF, and that the SMSF ownership is accredited in the country where the asset is located
- Overseas property investments still need to be consistent with the sole purpose test, meaning that a property located outside of Australia can’t be leased to a fund member or their relatives
- All overseas investments need to be considered against the return of the investment, potential risks and the cash flow needs of the SMSF. For instance, a viable return on property investment in the US needs to consider the exchange rate between the US and Australian dollar, the cost of travels to inspect the property
- ATO may investigate your overseas trips and closely monitor them to ensure there are no breaches of the sole purpose test