Can an SMSF invest in a mortgage fund?
Yes. A self-managed superannuation fund can invest in a wholesale mortgage fund, provided the SMSF’s investment strategy permits this asset class and the trustee qualifies as a wholesale investor under the Corporations Act 2001 (Cth). Many SMSF trustees allocate a portion of their fund to property-backed mortgage funds as a source of regular monthly income and portfolio diversification.
How does SMSF mortgage fund investment work?
When an SMSF invests in a mortgage fund, the fund’s capital is pooled with other investors and deployed into a portfolio of loans secured by registered mortgages over Australian real property. The SMSF receives monthly income distributions derived from the interest paid by borrowers, less management fees. This provides the trustee with regular cash flow without the complexity of directly owning and managing investment property.
What are the tax advantages?
Income earned by an SMSF is generally taxed at a concessional rate of 15 per cent during the accumulation phase. In pension phase, the income may be entirely tax-free, subject to the transfer balance cap and other superannuation rules. This concessional treatment can make mortgage fund investments more attractive inside super compared to investments held in a personal name, where income is taxed at the individual’s marginal rate.
What should SMSF trustees consider?
Before investing, SMSF trustees should ensure their investment strategy explicitly permits mortgage fund investments, consider the liquidity profile of the fund relative to the SMSF’s cash flow needs, assess whether the investment creates excessive concentration in a single asset class, and obtain independent financial, legal, and taxation advice. The sole purpose test requires that the investment is maintained for the purpose of providing retirement benefits to members.
Learn more: SMSF investment with Granor Capital | Wholesale mortgage funds | Wholesale investor eligibility
This article is for general information only and does not constitute financial or taxation advice.
