Borrowing Using Super Fund
- Thread starter coastymike
- Start date
Hi, this is a little off topic but can one do this instead of the complicated bare trusts etc?
Borrow through equity in whatever property available. Let's say in my case, I've maxed the resi IPs but can borrow off commercial properties @ 9%
Then having the funds in the offset account, contribute to the SMSF @ $50000 per financial year thereby saving a minimum $7500 per year. Do it in June & July, that's $15000 that calendar year.
In the SMSF, $100000 earns 4% daily rated interest - that's $4000 at least.
In the offset account, $100000 earns $5190 [5.19%]
In total for year 1, the savings = $16690 + $7500 [2nd financial year]
My funding costs = $18000 interest + establishment fees
In the next calendar year, I place $50000 in July
It will take 18 months to have $150000 in the SMSF
My funding costs are very high because I've maxed out my resi borrowings. Someone with equity in PPOR can borrow @4.99%
Is there a real need to use all the complicated techniques of unit warrants & etc?
K
Borrow through equity in whatever property available. Let's say in my case, I've maxed the resi IPs but can borrow off commercial properties @ 9%
Then having the funds in the offset account, contribute to the SMSF @ $50000 per financial year thereby saving a minimum $7500 per year. Do it in June & July, that's $15000 that calendar year.
In the SMSF, $100000 earns 4% daily rated interest - that's $4000 at least.
In the offset account, $100000 earns $5190 [5.19%]
In total for year 1, the savings = $16690 + $7500 [2nd financial year]
My funding costs = $18000 interest + establishment fees
In the next calendar year, I place $50000 in July
It will take 18 months to have $150000 in the SMSF
My funding costs are very high because I've maxed out my resi borrowings. Someone with equity in PPOR can borrow @4.99%
Is there a real need to use all the complicated techniques of unit warrants & etc?
K
Not sure what you are doing here ?
I hope you aren't expecting to deduct interest on money borrowed to make a personal contribution ?
Cheers,
Rob
What's wrong with that? I thought that was legit...
Hi, no, I won't be able to deduct interest costs. The whole point is that tax savings are higher than interest costs. And in the case of a home loan, the choice of a 5 year fixed loan will protect the strategy from unforeseen rate increases.
I will be either drawing down a pension or paying off the principal asap with personal income.
The contributions to the fund can be used to buy shares which can grow within the fund and after 60, cap gains will be tax free, assuming no changes to current regulations.
I happen to think that there are higher cap gains in stocks than in property in the places where I invest at the present time.
I will have to look at the numbers more carefully.
KY
I will be either drawing down a pension or paying off the principal asap with personal income.
The contributions to the fund can be used to buy shares which can grow within the fund and after 60, cap gains will be tax free, assuming no changes to current regulations.
I happen to think that there are higher cap gains in stocks than in property in the places where I invest at the present time.
I will have to look at the numbers more carefully.
KY
You will need a discount rate to do a present value calculation of any up-front tax deduction versus the earnings shortfall until the loan is paid down.
Assuming you can make concessional contributions to the level you desire.
If more than 10% of your gross assessable income is from employment, then you will have to do this via salary sacrifice with a co-operative employer.
Cheers,
Rob
Assuming you can make concessional contributions to the level you desire.
If more than 10% of your gross assessable income is from employment, then you will have to do this via salary sacrifice with a co-operative employer.
Cheers,
Rob
I was looking at something similar until i found out the law is changing slightly next year (for my case)
1. We were (my wife and I) planning to save as much money this fiancial year as we possibly could ($1,200 per week - so far so good)
2. Next fiancial year we were going to salary sacrifice the maxium for are age - put $50k in each
3. We were going to live of the balance of our salaries and have our savings as back-up
4. This would have reduced our taxable income considerably and as such we would qualify for Family Tax Benifit A & B
I calculated that we would pay $30,000 less in tax and receive $8,000 from the Government in welfare.
We were also going to deposit $1,000 after tax into super to recieved the government Co-contribution of $1,500.
This loophole is being closed after this financial year.
As soon as you see how much higher their interest rate is in comparison to NAB for example you will change your mind.
Personal guarantees should not be feared because they don't put the property in any danger.
My personal accountant and his auditing accountant don't have a problem with a personal guarantee and I did my own research and I don't have a problem with it either.
NAB and Westpac both require personal guarantees but have their own legal advice regarding the appropriateness of this for SMSF's which they have decided is OK. The fact is that no-one knows whether it adheres to the law or not ( just look at opinions through this forum ) and a draft determination with an ATO view would help.
Until then NAB remain miles in front of the others on interest rates are superb here in Melbourne with service and have met a client of ours timeline of a 30 day settlement. Our only client transaction through St.George took 3 months and they charged the client an extra $3500 in legal fees for the priviledge. Last time we dealt with them they were centralised with Corporate Bankers and Brokers where NAB are completely decentralised through their normal lending.
Only one catch for Mortgage Brokers such as ourselves is that NAB pay low commission and no trail but our clients don't care about that and a happy client is a happy GGA
Until then NAB remain miles in front of the others on interest rates are superb here in Melbourne with service and have met a client of ours timeline of a 30 day settlement. Our only client transaction through St.George took 3 months and they charged the client an extra $3500 in legal fees for the priviledge. Last time we dealt with them they were centralised with Corporate Bankers and Brokers where NAB are completely decentralised through their normal lending.
Only one catch for Mortgage Brokers such as ourselves is that NAB pay low commission and no trail but our clients don't care about that and a happy client is a happy GGA
Don't agree with you on this one BV. I'm sure your accountant and auditor wouldn't be willing to give personal guarantees themselves if they have half a brain so why would you ?
With the nab loan they are asking that you put in 35%. If you can somehow get that up to 45% say you do a redraw on another property you may find them willing to wave the personal guarantee.
Personal guarantees should be viewed as putting your head in a noose particularly in these uncertain times IMHO
Regards NR
Don't agree with you on this one BV. I'm sure your accountant and auditor wouldn't be willing to give personal guarantees themselves if they have half a brain so why would you ?
With the nab loan they are asking that you put in 35%. If you can somehow get that up to 45% say you do a redraw on another property you may find them willing to wave the personal guarantee.
Personal guarantees should be viewed as putting your head in a noose particularly in these uncertain times IMHO
Regards NR
NR
NAB will lend up to 70% and STGeorge up to 72%.
The personal guarantee is not a problem for me because I know that it's unlikely that I'll default on the loan. Additionaly, even if something did happen and I could not keep up with the repayments, I can sell and 30% is a large deposit so the bank loan will be paid in full.
You are right, I could redraw or I could borrow outside super and lend that amount to the SMSF but I don't need to do this. As long as interest rates stay under 7.5% the rent will cover the loan repayments.
cheers
Hi BV;
Your a braver soul than me
Personal guarantees should be a problem for everyone investing in Super. You should be aiming to have some of your assets away from your creditors. It is not about dudding the banks its about the train with the lights on and the horn blowing called the GFC. Warren Buffets rule number one protect your seed capital, rule number two refer to rule number one.Yes I know I'm a broken record. Sorry but a lot of neophytes who read about wanting to set up an SMSF should not be advised to do this.
BV
What is your accountants and auditors view regarding personal guarantees, self managed super funds and Section 295.550 of ITAA 1997 regarding non-arms length income.
What is your accountants and auditors view regarding personal guarantees, self managed super funds and Section 295.550 of ITAA 1997 regarding non-arms length income.
You might find that the Legal Advisors the banks are using are the same people who gave the green light to split loan arrangements with capitalised interest.
And perhaps the same as the ones who said that HDT's were able to split capital gains and still negative gear.
I do not feel comfortable trying to distinguish a personal guarantee by the Trustee as either being merely in his capacity as Trustee of the unit trust holding the asset, nor in respect of the trust assets in general.
And when I hear that individual members must sign then I run a mile.
There is an uncomfortable coexistence of multiple laws and Statute which leaves room for stretching the imagination for Promoters. Trouble is the responsibility rests on the Trustee.
I will just sit by and watch other people be the test pilots. I prefer to keep things simple ...
... I wonder why my SMSF audit is only $275 inc. GST ?
Cheers,
Rob
And perhaps the same as the ones who said that HDT's were able to split capital gains and still negative gear.
I do not feel comfortable trying to distinguish a personal guarantee by the Trustee as either being merely in his capacity as Trustee of the unit trust holding the asset, nor in respect of the trust assets in general.
And when I hear that individual members must sign then I run a mile.
There is an uncomfortable coexistence of multiple laws and Statute which leaves room for stretching the imagination for Promoters. Trouble is the responsibility rests on the Trustee.
I will just sit by and watch other people be the test pilots. I prefer to keep things simple ...
... I wonder why my SMSF audit is only $275 inc. GST ?
Cheers,
Rob
I was thinking that...but you said it!
The property warrant debate does have some uncomfortable similarities to the old HDT debate.
Each side shows a QC opinion saying that it's all legit or otherwise...so it's all about "my QC is better than your QC"...until the ATO gets ready to call the shots.
JIT
Technically it is the courts and ultimately the High Court which makes the decisions not the ATO. The ATO interpret legislation but at the end of the day the justices prevail.
Technically it is the courts and ultimately the High Court which makes the decisions not the ATO. The ATO interpret legislation but at the end of the day the justices prevail.
Hi, in case anyone missed it, Ryan Love posted a fantastic paper on the other thread whereby one can borrow using personal assets and then lend it to smsf via a security trust. Then the trust can buy shares or property and income can be used to pay interest accrued.
I ran some numbers using an LOC capitalising interest for 5 years at the same time chanelling all income into personal LOC [to pay down in 2 years]
The results are really exciting.
KY
I ran some numbers using an LOC capitalising interest for 5 years at the same time chanelling all income into personal LOC [to pay down in 2 years]
The results are really exciting.
KY
I like the Macquarrie opinion that most major banks products do not comply !!!
Like I said, I reckon the banks shop around for legal opinions until they find somebody prepared to stick their neck out and provide a favourable view.
Don't forget the banks will word it very carefully - advising YOU to do your due dilligence.
Cheers,
Rob
Like I said, I reckon the banks shop around for legal opinions until they find somebody prepared to stick their neck out and provide a favourable view.
Don't forget the banks will word it very carefully - advising YOU to do your due dilligence.
Cheers,
Rob
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