SMSFs and overseas property

Q: Since we can now use super to purchase real estate, is this also true for property in the United States? Can you provide me with some guidance on how I could find out the process and correct entities to form to do this? Thanks.

Trish’s response: Before I answer your question, I need to clarify your comment about now being able to use a super fund to purchase real estate. Superannuation funds, including self-managed super funds (SMSF), have always been able to invest in direct property. The big change is that the Government now permits SMSFs to use a special type of gearing structure to invest in property which means in certain circumstances, a SMSF doesn’t need the full purchase price to invest in real estate, or to invest in any other allowable investment.

A SMSF can in invest in all types of property such as indirect property investments, direct property (residential, commercial, industrial and rural) and property located overseas.

Anyone considering such an investment should seek out professional advice and if a SMSF is considering a particularly complex strategy, then perhaps a call to the technical experts at the ATO may be in order.

In theory there are no special rules applicable to direct overseas property but a few issues come to mind, including the following:

• Documentary evidence that a SMSF owns the overseas property, and that the fund ownership is recognised in the country where the asset is located.
• Any investment must still be consistent with the sole purpose test, which means, for example, a residential property located in the United States could not be leased to a fund member or relative of a fund member
• Any investment needs to be considered against the potential risk and return of the investment, and the cash flow needs of the fund. For example, a viable return for such an investment would also need to take into account the cost of any flights to inspect the property, and consider the risk that such overseas trips may be more closely investigated by the ATO as a possible breach of the sole purpose test.
• A fund’s auditor may need special documentation to verify the existence and ownership of the asset

You also ask for some information on the process to purchase overseas property and the entities necessary to proceed with such an investment. At this stage, our website cannot provide you with a list of overseas property specialists that are located in Australia, or located overseas. As a preliminary step, I suggest you speak with a financial adviser or accountant who knows a lot about SMSFs to confirm that your fund is in a position to consider such an investment, and the compliance process involved from a SMSF point of view.