Hi Guys,
one of our Friends have opened a self managed fund account with Bank and bought a office outright. They are then using the rental income to fill back the super annuation.
What do our illustrious selfish cheap arse ozbargainers (me included :)) think of this?
Thoughts?
Why?
Because he say so
The reason we have super is to have money in our twilight years.
If you are willing to take the risk that your investment will continue to increase in value then go for it
-apparently the tax rules etc are very very strict.
That said i'm not sure i would want my money invested in say the ACT real estate market right now (due to budget cuts)
"If you are willing to take the risk that your investment will continue to increase in value"
LOL, show me something out there that is risk free - shares have been smashed in the past, superannuation was damn near wiped for many, gold went up but has since plummeted, bank deposits after tax, fees and inflation give damn near 0%
Speaking of LOL :)
Note most lenders demand a 30% deposit on real estate purchased via SMSF. Also, ATO rules mean you can't borrow additional funds later to renovate/redevelop until the first mortgage is discharged. You can't invest in related party real estate except for business property (so you could buy your family business factory, for example). So no holiday house or flat for the kids to use while at uni etc.
With these restrictions in mind, and if you believe Au real estate is a good long term investment, I think it is a tax effective way to hold that investment.
I personally use superannuation warehouse for my smsf. They are pretty cheap, very flexible, and handle a lot of the admin load. They don't, however, offer any advice. So you need to have your own adviser or do that work yourself.
Can u elaborate why it's tax effective? My limited understanding is all gain and income from the smsf owned property is taxed at 15% whereas those from property in personal name is subject to capital gain tax at personal marginal tax rate. But 50% discount is available for latter.
Super is tax effective for people paying tax at greater than 15%, which is most workers.
The tax is 15% flat in the accumulation phase (before you turn 55 currently).
After you switch to the pension phase, tax is 0%.
Since selling an investment property held for many years is, hopefully, going to result in a sizable capital gain, you would pay a lot of tax in CGT. For example, if you owned the property yourself, earn $80k p.a, and sell it for $100k more than you purchased, the CGT will be calculated on 50% of the gain, then added to that year's taxable income ($80k) to calculate the CGT, which will be 37% (as your total income form work and gains adds up to $130k) of the half of the $100k gain, or $18500.
If you bought the same in super it would be 10% of the full $100k (you get a discount for assets held over 12 months) or $10k. If you hold until you retire it is zero.
See:
http://www.superguide.com.au/smsfs/smsfs-selling-a-property-…
Tax on super is a massive handout to high income earners.
Note, this falls apart if the property is negatively geared, as the low tax rates generate little tax to offset. But the 30% minimum deposit makes it hard to negatively gear anyway!
Note the above has some extra nuances depending on a bunch of factors, but is generally a reasonable real world example.
Note 2, I am neither a financial advisor, nor a tax/accountant type, so consider the amateur source of this info before you act on it ;-)
Thanks a lot. I have learned a lot as a chartered accountant. :)
All good in theory unless you retire early.
dont think you can buy real property with SMSF