SMSF, Gearing & Finance
- Thread starter agent007
- Start date
Nah
Aint gonna happen from any sensible lender.
Beause the loans have to be non recourse with no effective guarantee 65 to 70 is the likely heady max.
ta
rolf
Aint gonna happen from any sensible lender.
Beause the loans have to be non recourse with no effective guarantee 65 to 70 is the likely heady max.
ta
rolf
IMO, don't go anywhere near NAB and Westpac as they require personal guarantees and ATO have said (clearly) that this concerns them (and makes the loan not limited recourse). See http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20085/NAT/ATO/00001
St George's rate is about 1% higher but at least its product is complying (its 3 year rate is 6.87% which isn't too bad). Don't risk your fund being non-complying or you'll pay 45% tax rate, not 15%.
We have done a lot of work in this and I don't think this advice is correct. I have advice that NAB and Westpac g/tees are not in line with ATO advice. If the ATO says they don't like something (and they have been clear), I would listen. Its pretty blank and white to me. Be careful with the bare trust docs also - they need to cover off any CGT and stamp duty issues that may be triggered when property eventually transfers into the fund.
I understand your concerns but my accountant didn't seem too concerned when I mentioned it. I am going to see him on Monday so will discuss this issue in detail.
NAB variable rates are very tempting. If I have to go with a different lender and pay the extra 1% maybe I should be looking at the 10 year fixed option.
Are fixed rates much more expensive?
cheers
The position of personal guarantees when borrowing via a SMSF continues to attract mixed comment.
It's interesting to note that the CBA recently released their SMSF product called SuperGear. In their documentation they provide a taxation letter from Greenwoods & Freehills (dated 3 Nov 2008) providing a general outline of the tax implications of the SuperGear product.
In particular under the heading of "Non-arm's length income" Greenwoods & Freehills state;
"Provided that all dealings between parties are at arm's length (including the acquistion of the Asset and the leasing of the Asset), SuperGear, including any indemnity given by a SMSF member to CBA, should not cause the non-arms length provisions, which can cause income to be taxed at 45%, to apply to a SMSF Trustee".
Anybody got any comment/thoughts on the above?
It's interesting to note that the CBA recently released their SMSF product called SuperGear. In their documentation they provide a taxation letter from Greenwoods & Freehills (dated 3 Nov 2008) providing a general outline of the tax implications of the SuperGear product.
In particular under the heading of "Non-arm's length income" Greenwoods & Freehills state;
"Provided that all dealings between parties are at arm's length (including the acquistion of the Asset and the leasing of the Asset), SuperGear, including any indemnity given by a SMSF member to CBA, should not cause the non-arms length provisions, which can cause income to be taxed at 45%, to apply to a SMSF Trustee".
Anybody got any comment/thoughts on the above?
You rang
Actually it is a limited recourse loan. The property is used as security and this can be taken back by the bank if there is a default. The bank however has no call on the other assets of the super fund hence it is a limited recourse loan.
Sorry 007 forgot to answer your question. CBA do 80% but your not going to perhaps like the terms etc.
Hiya NR
I dunno............."non" recourse in my vocab has always meant, my security is limited ONLY to the asset pledged............you can have the security but u cant go me.
I have not heard of the use of limited recourse much, but I suppose one can stipulate limited guarantees etc.
As an aside have a look at the LVRs that were typically available according to this source.............no wonder the US got into knee deep trouble.
http://en.wikipedia.org/wiki/Nonrecourse_debt
ta
rolf
I dunno............."non" recourse in my vocab has always meant, my security is limited ONLY to the asset pledged............you can have the security but u cant go me.
I have not heard of the use of limited recourse much, but I suppose one can stipulate limited guarantees etc.
As an aside have a look at the LVRs that were typically available according to this source.............no wonder the US got into knee deep trouble.
http://en.wikipedia.org/wiki/Nonrecourse_debt
ta
rolf
Mike
But Greenwoods & Freehills is not the ATO
Is it safe to accept their opinion on the product and to go ahead giving a personal guarantee to the lender?
What if the lender does take the SMSF asset plus our other assets?
Isn't asset protection the issue?
Isn't the ATO trying to protect our asset within the SMSF?
This is a different issue. I am not concerned about the "non arms length" issue. The problem is personal g/tees doesn't comply with the requirement that the loan should be limited recourse. This is a completely seperate issue to the "arms length" requirement addressed above.
The problem is this area is complex which means "marketing brochures" can easily confuse people.
Thanks for the great link Rolf. If you look further into the link about the tax implications the lender gets screwed but the IRS makes the Australian tax office look like soft touches. The IRS gets its pound of flesh from the investor regardless.
As your aware in Australia the normal commercial loan here has traditionally requirred the borrower to stump up with 30-40% of the money depending on his risk profile.
When you consider what happened in the early 1990's to Westpac and ANZ with some of their commercial loans where the borrower had 40% equity, the banks still took a bath.
With regard to SMSF loans that is why the nab is insisting on personal guarantees which makes the limited recourse aspect a fallacy. You can't blame the banks as with the REIT's on the stock exchange facing revaluations that will approach losing 70% of their value.
If you go back to my posts in Feb 2008 my position with SMSF loans was that realistically if you cannot put up 40-50% equity in the new warrant arrangement then don't do it. Anyone who agrees to giving a personal guarantee that is a trustee or a beneficiary of an SMSF need their head read.
That is why my call that we will see residential losses of 40-50% and commercial losses up to 70% is entirely plausable with what is going down overseas.
There is an element on this site who have no grounding in commercial reality.
Hi StuartW,
I had a meeting with my solicitor to discuss this issue. She agreed that the personal guarantee will make the fund non-complying and as such, won't recommend this course of action.
Thank you for your input!
