How to get More Power out of Your Super Fund

[Maverick]

I’ve come across the article “How to get More Power out of Your Super Fund” that shows how investment into property may be accelerated by utilising Super and Unit Trust.

Some aspects of the article are not completely clear to me, and I was wondering whether someone would understand it better and clarify (maybe from previous experience):

Annually, of course, 9% of income is legislated in to their Super Fund, plus they can salary-sacrifice money at 15% tax. This money can be directed into the unit trust, and then returned, tax-free, as a capital return to John and Mary, who use it to pay down the original debt. In other words, John and Mary use money taxed at just 15%, not up to 48.5% to pay off the property debt they have in their own name.

Questions:
- Why/How the “…money can be directed into the unit trust…”?
- How the money may be “…then returned, tax-free, as a capital return…”?
- Does this strategy really allow to “…use money taxed at just 15%, not up to 48.5% to pay off the property debt…”?

Regards.

 

[jrc]

Presumably the superr fund applies for more units in the unit trust and the individuals redeem back some of their units to the super fund. This might avoid the issue of dealing with your own fund except for business property

 

[Ross Sondergeld]

JV --- Me 80% and the Super Fund 20% ????

Hi...


I'm young... so i've got no interest in building a super fund. But if I have a self managed super fund... can I use the SMSF money as the deposit?


Can I buy a property for say $600,000 and do the following...
SMSF $ 60,000 from super fund
Ross $540,000 borrowed by me (Me as in Trust, Individual, etc.)
Ignore other costs to keep it simple.


AIM -- To buy-hold-sell after 2 years
Results --- SMSF gets a 10% share of profits... balance to me


- Ross

 

[geoffw]

I'm young... so i've got no interest in building a super fund. But if I have a self managed super fund... can I use the SMSF money as the deposit?

I have heard that it could be done in a joint venture- but the terms of the JV must be drawn up very carefully to comply with SMSF legislation

http://www.holdingredlich.com.au/HoldingRedlichSuperannuationFundJointVentures.php
http://www.icaa.org.au/newsletters/newsletter.cfm?newsletterid=A114553522 - point 2

I have heard of a JV where the individual provides the bulk of the funds and the SMSF provides funds for a reno. The renovated property is sold and the proceeds split 50-50.

 

[Ross Sondergeld]

Hi Geoff...


Reference from link- "By contrast, the legislation does not preclude a joint investment between the fund and employers via a company or trust where the property is owned between the parties as tenants in common."

Thanks Geoff.

Background - Self employed, trade through a trust, smsf, etc.
Venture - Buy a house and hold for 3 years (in anticipation of a boom)
Parties - SMSF and a Discretionary Trust

Can the SMSF kick-in the 20% deposit and can the trust borrow the 80%.
(SMSF money allows me to buy more assests using the SMSF for leverage.)


- Ross

 

[buzzlightyear]

Ross, whilst definitely no expert, in going through the links than Geoff had provided, the test as to whether your arrangement as you have oultined is a JV or partnership (and therefore allowed under super legislation), is the true character of the relationship between the entities, not the entities themselves or the written agreements set up between them.

On the surface, it seems as if your example would consititute a share of jointly earned profit and therefore a partnership (as defined by , which would preculde you from investing your super funds in this manner.

Geoff gives the renovation example, which to my simple mind sound also like sharing in jointly earning profit not the sharing of output/product. For example, if developing a block of land and you (individual or trust) take property one, whilst the SMSF receives property two, which would be OK and sharing in the output.

 

[Andrew]

Firstly, I am not a lawyer. With that out of the way, my understanding is that a super
fund cannot borrow money or invest in an asset with a claim against it (such as a
mortgage.) I think these schemes rely on you having enough equity/cash to purchase
the property outright, possibly using a different property as the security.

I'd like to be wrong on this, how nice it would be to use my lazy super dollars to buy
a shiny new PPOR and rent it from a trust (I'm sure there are many further issues
with that approach too!)

andy

 

[landlubber]

In a nutshell, my understanding is that these are the basics ...
1) You need cash in your SMSF ( ..let's say $100K) .
2) You use that cash to purchase units in the UT....so the $100K is now in the UT bank account.
3) Other cash ( from "somewhere" e.g. equity loan secured by PPOR, other IPs etc ) also used similarly to purchase units in the UT.(Let's say another $200K)
4) total cash from 2 and 3 ($300K) must be enough to purchase IP outright including all acquistion costs , stamp duty etc.

Notes.
a) The rules are that the SMSF cannot borrow , hence the UT trust cannot borrow , and hence it is imperitive that the IP purchased by the UT is NOT USED AS SECURITY IN ANY WAY for ANY LOANS.
b) The limitation (as I see it ) is that as the IP in the UT increases in value , there is no way to access the equity ..and use it to buy more IPs.
c) but the structure DOES get some leverage into your SMSF.

Please don't "hang me out to dry" on the details. I'm not a CPA or a tax expert !!

LL