The sole purpose of superannuation funds is to generate benefits for retirement or maybe some other unfortunate circumstance like premature death or total disability. The Superannuation Guarantee legislation was introduced many years back to encourage people to provide for their retirement, and possibly take pressure off the social security system in a country that has the word wide problem of an aging population.
To encourage this, the government has granted superannuation funds generous tax benefits. Tax payable on superannuation contributions and most superannuation earnings is calculated at 15%, except in the case of people earning in excess of $300,000 per annum. Also, once in retirement phase your superannuation earnings are tax free.
This means that superannuation is a really great tax planning tool. Superannuation is not in itself a traditional product, merely a means of holding your retirement funds and investments. So, if the markets you are invested in do well, your superannuation does well, and vice versa.
A growing trend in recent years has been the number of people opting for their own Self Managed Superannuation Fund. This is the fastest growing sector of the superannuation industry. A major reason for this is the attraction of the property market. A SMSF can buy property directly and can even borrow money to do sounder certain conditions. It is quite popular for people running a business to buy their business premises in their SMSF, thereby purchasing an income producing asset for their retirement, when they may sell their business and have the new owner pay rent for the premises. By using limited recourse borrowing they can finance the purchases and hopefully have it fully paid up by the time they retire.
Others purchase residential property for a similar reason, using the borrowings to gear their investment. They can take advantage of negative gearing during their working years and sell the property once in pension phase and so avoid capital gains tax.
A question often asked by trustees is whether they can sell an existing rental property that they already own to their super fund. The answer to this is a resounding NO. A SMSF cannot buy property from a related party. That is a trustee or various relatives as defined in the SIS Act. The only exceptions are listed securities and business real property ie property which is soly used for business purposes.