How much to keep in SMSF and is this tax effective?

[Speed_D3mon]

Hey guys,

I currently own 2 IP's and rent. I've been looking in to purchasing property in a SMSF and have a few q's regarding this. I currently don't have a great deal in my super as I've been self employed and have neglected it somewhat. I'm planning to start shuffling cash in to the fund up to the threshold however while looking in to this, I've been wondering, how much property etc should I keep in a SMSF instead of my personal name? The tax benefits seem pretty significant so purely financially it seems I should put everything in the SMSF?? However I'm only 24 and retirement is a long way off. All the property I own or plan to own I have no intention of ever selling until retirement however.

Also, if I sell the current IP's to the SMSF, do they incur CGT? 1 was a PPOR and should be covered under the 6 year rule and the other has minimal gains so far. Would this be a good idea?

And finally, as I move around alot and dislike renting, if I were to buy a PPOR and then move every few years, would this be a good time to swap that property (which would become an IP) in to the SMSF? Would this be financially beneficial?

I still have a lot of research to do regarding SMSF's but am slowly getting there. Appreciate any advice. Cheers.

 

[Propertunity]

Also, if I sell the current IP's to the SMSF, .....Would this be a good idea?

No, that would be a bad idea - very bad. You cannot sell your resi IPs to your SMSF.

I still have a lot of research to do regarding SMSF's

Yes, you do.

 

[Hillview]

SMSF's

Proportunity is right again. You can not sell a residential property owen by you (or an associate of you) in to a SMSF. It is a breach of the law, and the penalties for doing so, i think can be up to 45% of your funds assets, a harsh penalty. The other issue is that the SMSF has a "sole purpose test" which is generally to pay benefits or a pension to its members, and so you have to have enough cash in the fund to deal with this should it be required. The other issue is you will have to actually be able to service the debt from the fund, and this could be difficult depending on how much you need to service. I really recommend you talk to someone about this, it could be a hard learned lesson.

 

[neK]

No, that would be a bad idea - very bad. You cannot sell your resi IPs to your SMSF.

Yes, you do.

Well you can.... but the value of the residential property would need to be less than 5% of your total super balance

You can sell the property to someone else and buy it back, but thats a waste of stamp duty.

Better off accumulating more funds and buying a new IP in the SMSF.

Most lenders will lend up to 70% of the property value, so you will need at least 30% deposit in your SMSF.

However the downside is that as you are 24, you wont be able to access your super funds until 60, so thats a long time to be locking up funds.... even if it is a 30% deposit. Though in the long term its probably better you own the property in the SMSF due to concessional tax treatment.

 

[alexlee]

Also note, refinancing is much more difficult in a SMSF. One common strategy is to buy a property and refinance to extract equity to use to buy other investments as it increases in value. Buying in a SMSF may limit this.

 

[jingo]

Hey guys,

I currently don't have a great deal in my super as I've been self employed and have neglected it somewhat.

However I'm only 24 and retirement is a long way off.

Just my own thoughts, but you are probably better off continuing to buy IP's outside of super. Refinancing inside super is difficult at best.

Remember that super is very restrictive - not available for decades - in your case. The rules continually change too.

Regards Jason.

 

[Marko Legija]

You shouldn't be thinking of accumulating assets in your super fund till your in your 50's, or if your confident the rest of your life will be smooth sailing, in your 40's.

But 20's and 30's is way too early.

 

[Ed Barton]

Hey guys,

I currently own 2 IP's and rent. I've been looking in to purchasing property in a SMSF and have a few q's regarding this. I currently don't have a great deal in my super as I've been self employed and have neglected it somewhat. I'm planning to start shuffling cash in to the fund up to the threshold however while looking in to this, I've been wondering, how much property etc should I keep in a SMSF instead of my personal name? The tax benefits seem pretty significant so purely financially it seems I should put everything in the SMSF?? However I'm only 24 and retirement is a long way off. All the property I own or plan to own I have no intention of ever selling until retirement however.

Also, if I sell the current IP's to the SMSF, do they incur CGT? 1 was a PPOR and should be covered under the 6 year rule and the other has minimal gains so far. Would this be a good idea?

And finally, as I move around alot and dislike renting, if I were to buy a PPOR and then move every few years, would this be a good time to swap that property (which would become an IP) in to the SMSF? Would this be financially beneficial?

I still have a lot of research to do regarding SMSF's but am slowly getting there. Appreciate any advice. Cheers.

1. a lot of people here invest in property in the hope of early retirement. when do you want to stop working? no good having the means to retire when you want to, but you're still 10 years away from being able to get your hands on super
2. how much are you planning to put in per year? smsfs are expensive to run if you don't have/contribute much.
3. is housing the only investment class you have? have you thought of non resi investing within a non smsf? some allow you quite a bit of choice in classes, check out mac bank for instance.
4. super rules (and tax, pension) can, have, and certainly will change. that might not be for your better. 36 years a long time.

good luck with your investments and well done so far.
here's a couple of links for your research
http://phorums.com.au/archive/index.php/t-167093.html
http://www.esuperfund.com.au/Default.aspx

 

[Ian (WA)]

SD,

You mention you don't have much super presently........unless you have at least $120 - $150k minimum, then you won't seriously be able to play (i.e. to acquire an asset that will do what you need it to do)......read on:

Depending on what you want from the super i.e. capital growth to have a big retirement nest egg, or positive steady stream of income being paid back to you as an annuity or the like, this will determine what sort of asset(s) you need to look at acquiring. You may well end up purchasing a number of assets via different non-recourse entities over a longer period of time.

As was mentioned earlier, super is very restrictive, requires ongoing administartion & costs, re-drawing could be an issue for you as well if your life takes an unexpected twist or turn along the way.

For the moment, take heed of all the preceding comments particularly issues pertaining to the time frame until your "permanent" retirement......it is a very long way off.

By all means consider a SMSF further down the track, but for now maybe focus on other vehicles / methods of investing. Cash Positive / High Capital Growth / Subdivision / Development / etc. etc.

Maybe for now, just focus your SMSF energies on researching what would be your best structure at this stage of your investing.......plenty of info on the forum on structures. SMSF can be part of this further down the track.

Cheers,

Ian.

 

[Ian (WA)]

......as for renting , moving a lot, PPOR etc.

There is nothing wrong with renting if you can bring yourself to use any excess funds to invest further. I think may of us have rented previously and know how much you dislike it.....but it can be useful too!!

Moving a lot and having a PPOR is something of a contradiction but it really depends on your lifestyle / work / short to medium term future.......a succession of PPORs can work but this will all be your choice. HINT: if you do buy once or ten times as a PPOR, make sure each time that it's a quality growth asset which will serve you well as an IP if you move on again. Remember to go for a mix of assets as well because you will need to have cash coming in if you want to keep buying.

Cheers,

Ian.

 

[MikeF]

Also note, refinancing is much more difficult in a SMSF. One common strategy is to buy a property and refinance to extract equity to use to buy other investments as it increases in value. Buying in a SMSF may limit this.

Forget refinancing......a new borrowing can only be used to repay a previous debt and meet associated costs of replacing the original asset into the new borrowing.

My understanding also is that the new borrowing can only be in relation to a single acquirable asset and no other acquirable asset.

 

[Speed_D3mon]

Yeah I don't have anywhere near the funds to bother with a SMSF yet. I was looking at contributing up to the threshold, which i think is currently 25k/year. So I'd still be a few years off doing this I guess. I think I may look elsewhere for my investments at the moment though based on the above advice. All very helpful. Thanks guys.