When to Plan for Retirement
For some people considering retiring, it might be worth moderately gearing the equity in your property to buy assets within your Self Managed Super Fund (SMSF). This strategy would only be appropriate to those who are still a decade away from retirement
The ATO allows members of a SMSF to loan money to the fund via a Limited Recourse Borrowing Arrangement (LRBA). The ATO Practical Compliance Guideline 2016/5 which was published in April 2016, sets out the level of gearing allowed, the interest rate that must be charged, the term of the loan and rules around registering a mortgage over the property geared.
These guidelines must be followed to ensure the SMSF remains compliant in the eyes of the ATO.
This strategy has the benefit of a tax concessional environment in which the assets sit. If your asset is geared at a suitable level whereby it is positively or neutrally geared, then a sudden reduction in income would not affect cash flow, as the asset pays for itself.
It is recommended that such a strategy be discussed with your financial planner to ensure it is appropriate for your particular circumstances and that it sits within the investment strategy of your SMSF.