DIY Suoer Funds.....

[watto]

Is there any avenues to explore when it comes to super monies?

My business partners and i are looking for ways to unlock our super money and put it to better use, in Real Estate.

What sort of options are ther for pooling of funds and putting into the Freehold of a business?


Any good links or sources of info would be great.


cheers
watto

 

[Les]

G'day Watto,

Two or three years ago, I attended an "evening" where Kevin Munro outlined some possibilities re SMSF's and property.

If I remember correctly, he was saying things like "You can JV with other SMSF's to buy property outright" (mainly because SMSF's can't borrow).

At the time, my (then) Accountant advised staying clear of such an arrangement. But, since you ask, Search for Kevin Munro and you will (in at least one of the posts) find a url that should take you down the Kevin Munro path.

There were a number of other possibilities mentioned too - so could be worth having a look.....

Regards,

 

[Jonezy]

I'm not sure of all the rules and regs concerning a SMSF, but could the fund possibly lend the money to your business at a rate of 2% or something? (I'm assuming you wont be relying on your super making a great deal of money, I know mine never has)

That way its available for use by the business to be earning higher returns when pooled with other cash or borrowings obtained for investments.

Just an idea I had in a half-asleep daze

 

[l00kin4]

A good first port of call is the ATO site. There are a lot of restrictions on smsf investments. Check this link:
http://www.ato.gov.au/content.asp?doc=/content/Professionals/super/menusmsf.h

Basically you must invest at arms length so 2% loans to your business are out of the question. For property you can invest in residential as tenants in common with yourself personally or in business real estate paying a market rent- these are the only exceptions I can see to the arm's length rule.

There's another thread on this where kierank has outlined some issues he has in disentangling an IP arrangement with his smsf - worth checking this out.

 

[NickM]

DIY Super

Hi Watto
I specialise in assisting people to restructure their investments.

Briefly,
You could use a Unit Trust to hold the property providing there is no mortgage on the property. The SMSF then invest in that unit trust and the money comes put to the vendor. There are CGT, stamp duty and SIS issues to consider but i am happy to discuss this further with you if you wish.
Business real property is exempt from the in house asset rules. I would steer clear of loans to associates as that is asking for trouble and an audit !

 

[XBenX]

search the other thread on this topic

pre 99 debt would be nice (but its still a risky path)
JV is another possibility (but read the other thread for the downfall of this strategy)

NickM - in the JV scenario are you ever able to access the equity in the property without resale - I can see you being able to as the super fund would then hold an asset that is being used as security.... maybe you can shed some light.... i can see very few ppl here who would like to have $X equity tied up in a property, unable to get it out unless they sell.

PS welcome to the forum, its great to share information, just dont constantly troll for clients, its annoying

btw im a nobody around here... so take my advise as you wish

 

[NickM]

Ben
i do not propose a JV. i recommend a unit trust structure. if a SMSF is involved then the property cannot be held as security for any borrowings. this would rule out a lot of people. you must be in a very strong asset position to be able to do this.

you cannot access the equity however the goal here would be to have a property that is 100%owned by a SMSF that may not be in a position to buy 100% of the property today. this strategy is one that i have used frequently in the past with business clients that want their super fund to own the business premises. STamp duty is also minimised when the super fund acquires the balance of units in the unit trust at a later date.

PS thanks for the welcome. i was pointed to this site by a client of mine. I apologise if i have annoyed you but i am in business and i love what i do which is why i am here in the first place. Most accountants wouldnt bother giving free advice.

hope i have been of assistance

 

[geoffw]

Nick,

Thanks for the advice you've been giving. I hope it can continue. Certainly Chris Batten's material is new to many of us, and a helping hand in some of those areas in particular is of help.

Your contributions are welcome.

I suspect that if your contributions continue to be valuable, you will be able to get clients from the forum anyway. We know who you are now- you were very up front about who you were and what you did.

If you have a website, include it in your signature. You won't have to mention again that you're in the business.

 

[watto]

Thanks for the replies guys,

Especially NickM,

Briefly,
You could use a Unit Trust to hold the property providing there is no mortgage on the property. The SMSF then invest in that unit trust and the money comes put to the vendor. There are CGT, stamp duty and SIS issues to consider but i am happy to discuss this further with you if you wish.
Business real property is exempt from the in house asset rules. I would steer clear of loans to associates as that is asking for trouble and an audit !

So what possiblities are there for a SMSF to own a business property if the property will have borrowings secured to it?

From the above it seems to be zero.

Also what does the line "Business real property is exempt from the in house asset rules" mean?



cheers
watto

 

[NickM]

Thanks for your support Geoff.
I was a little reluctant to participate, but i couldnt resist !

I am actually quite impressed by the quality of the content and the knowledge displayed by some people. Good to see that you guys actually do some research and are trying to learn.

I am actually in the process of finalising a website which i hope to have up in the next week or so.
I will add it to my profile when it is ready.

Watto
So what possiblities are there for a SMSF to own a business property if the property will have borrowings secured to it?

None. the only way is to secure another property such as the PPOR for the borrowing. It is a very good strategy to release super monies.

Also what does the line "Business real property is exempt from the in house asset rules" mean?

Sorry for using technical speak. A super fund cannot invest more than 5% of its assets into a related entity. IE a Unit Trust. However there is an exemption from this rule if the unit trust invests in unencumbered business real property. That property doesnt have to be used in your business, it can be leased to
someone else's business.

Hope that explains it a little better

Cheers
Nick

 

[l00kin4]

NickM,

just a question over securing a part share of a property investment with PPOR. This was raised by kierank in another post but to recap the problem:
In this situation once capital growth increases the equity of both the smsf and your personal share of the IP, because of the no borrowing restriction you are unable to access this equity to purchase more property without actually selling the IP and due to the related parties rules you essentially must sell to a third party i.e. you can't sell the smsf's share to yourself or vice versa.

Then there's a capital gain hit for both the smsf and personally.

The other issue is that you have also locked up PPOR equity as security and don't get the benefit of additional security from the capital growth.

I hope that all makes sense.

I'm looking for somewhere to invest my smsf currently but it isn't enough to buy in the growth areas I'd like. I have a good chunk of equity in my PPOR which I can use as security to make up the difference but I'm hesitant because of the above issues.

Is there a way around this that we're missing?

 

[XBenX]

Originally posted by NickM
Good to see that you guys actually do some research and are trying to learn.

I am actually in the process of finalising a website which i hope to have up in the next week or so.
I will add it to my profile when it is ready.

Nick - your contributions are valuable dont get me wrong....but are you sure your not a TOTS alias? He started in a _very_ similar manner (except he didnt actually contribute anything)

 

[NickM]

Ben

excuse my ignorance - what is a TOTS alias ?

 

[geoffw]

Nick,

TOTS is (was?) a forumite. Search by username.

 

[XBenX]

as above

maybe im being a bit harsh - i just dont think its necessary to troll for clients

if you give good answers and put that you are an accountant in your sig ppl will flood to you for advice

Im sure Dale gets lots of "business" from the forum, and I have to commend the way he goes about it.

Summary - I dont want to discourage you Nick - you posts have been informative.

 

[watto]

ok nickm i've been thinking this one over for a while.....

My business partners and i own several soon to be strata titled units. These units are positive geared and generate good cashflows with a high level of finance secured to them.

Can we explore any options to sell some of these units in a JV SMSF?

What are the CGT issuses we have only held these since settling last October?

Stamp duty would be another issue that comes to mind.

What will be the effect on income and expenses generated by these units?


cheers
watto

 

[bundy1964]

Hi Watto

I would think the related party transfers would put a stop to that plan from what I gather is my understanding of the rules.

* disclaimer I am not a beancounter or a lawyer so what would I know *

bundy

 

[kierank]

Originally posted by l00kin4
just a question over securing a part share of a property investment with PPOR. This was raised by kierank in another post but to recap the problem:
In this situation once capital growth increases the equity of both the smsf and your personal share of the IP, because of the no borrowing restriction you are unable to access this equity to purchase more property without actually selling the IP and due to the related parties rules you essentially must sell to a third party i.e. you can't sell the smsf's share to yourself or vice versa.

My understanding is that you CAN sell the smsf share to yourself but you CANNOT sell your share to the smsf.

 

[l00kin4]

OK, sorry. I may have misunderstood that point but looking at the ATO's smsf trustees guide, it states the following:

"Investments to be made and maintained on an arms length basis

Investments by smsf's must be made and maintained on a strict commercial basis. The pruchase and sale price of fund assets should always reflect a true market value for the asset...."

So although it seems that you could sell smsf share of an IP to yourself you'd have to be absolutely squeaky clean on the market value. I wonder what the ATO would accept as evidence, 1 valuation, 2...?

Something to be wary of

 

[kierank]

Originally posted by l00kin4
So although it seems that you could sell smsf share of an IP to yourself you'd have to be absolutely squeaky clean on the market value. I wonder what the ATO would accept as evidence, 1 valuation, 2...?

That is my understanding - that is, if you sell smsf share of an IP to yourself, it must be at market value and you will need to prove it - I assume one independent valuation of be sufficient but I don't know for sure.

BUT, under NO circumstances, can you sell your share to your smsf. Even if you were prepared to do so at market value, you CAN'T do it - that is my understanding. I would love for someone to say (quoting source of proof) that I was wrong. I would then invoke this course of action - my advice (from many) is that you CAN'T.

kierank.