Creating a Self Managed Super Funds (SMSF) in order to purchase an investment property is becoming a popular alternative for investors. This approach requires a thorough understanding of detailed legislation, including the following restrictions:

• The investment property can only provide returns or equity towards the retirement fund
• You or related parties cannot rent or live in the property
• The investment real estate cannot be purchased from a related party
• SMSF gearing attracts higher costs and the SMSF must provide the cash flow for the loan repayments
• You can only borrow money to maintain the property not improve it
• You cannot offset tax losses against your taxable income earned independently of your SMSF.

There are, however, significant tax advantages when investing in property using a SMSF. The rental income earned along with any capital gain made, will be taxed at a maximum rate of 15 per cent. Once you’ve owned the property for more than one year the capital gain tax rate drops to 10 per cent. For more information on SMSFs visit the ASIC MoneySmart website.