Things To Consider For SMSFs Buying Overseas Property
A key benefit of establishing and operating a Self Managed Superannuation Fund (“SMSF”) is the flexibility to acquire a wide range of assets, including the ability to acquire overseas property. This can occur either by an outright purchase by the SMSF trustee or by borrowing using a limited recourse borrowing arrangement (LRBA).
There are however a number of considerations SMSF holders should take into account before embarking on overseas property investment, both for outright purchase of property and investment with borrowings.
While SMSF trustees can purchase a property overseas, there are many compliance issues that need to be considered. In particular:
Foreign taxation rules concerning the nature of a SMSF which is an Australia specific type of entity.
Further issues arise if the SMSF trustee wishes to borrow to acquire the property using a LRBA. Particularly in cases where the acquired property must be held via a foreign company, banks may be reluctant to lend money to acquire shares in a foreign company. Borrowing through overseas banks can also cause problems where documents are inconsistent with Australian superannuation requirements.
If the SMSF trustee were to borrow from a related party rather than a bank, there can be issues in complying with arm’s lengths practices, meaning the transaction must be conducted on a commercial basis as if there were no relationships between the parties.
It is important to consider additional costs in sourcing the property through an agent or advocate in the foreign country, undertaking repairs and maintenance and legal costs to complete the conveyance and provide ongoing advice.
SMSF trustees looking to invest in overseas property should be aware there are a number of complications that can arise from acquiring property in a foreign country. Compliance issues and processes that are relatively clear-cut in Australia are not necessarily straightforward in overseas jurisdictions.
ESV is experienced in navigating the complex provisions surrounding acquisition of property in SMSF’s. If you have any queries in relation to property acquisition, LRBAs or SMSFs generally, please do not hesitate to contact us or call your ESV engagement partner on 02 9283 1666.