If you are 50 will you use SMSF to buy IPs

[klublok]

I am wondering if fully registered boarding houses can be classified as business or commercial (so that it can be transferred into a SMSF) ?

You should check out the tax ruling the ATO has on this issue.

A bit of a light read, but essentially if your property is used to run a business, it does not matter whether it is commercial or residential. So for example if I own a residential house and it is leased to a doctor running his GP practice out of the place, then the ATO sees this as "business real property" and would allow my super fund to acquire it off one of my related entities.

The same thing applies to vacant land. We have had several private rulings that allowed developers to transfer (or their SMSF acquire) vacant land off their trusts and then do joint ventures with their development companies for the actual development.

 

[klublok]

I've been thinking of another way apart from transferring.

Why don't your SMSF enter into a deferred purchase agreement with the property owner (presumably a related party). This way you defer the CGT until the final payment and there is a possible deferral of stamp duty as well?

 

[kum yin lau]

Hi Klublok, then you can't get the tax benefit, can you?

KY

 

[klublok]

Depends on what tax benefits you are talking about.

In most of the cases where we did deferred purchases, we are sheltering the rent away from high marginal tax of the owners, high CGT later on (where they would not be able to get small business concessions CGT discounts) and higher stamp duty when the property market recovers.

Under the arrangement, the SMSF would get the rent from the date of the contract (or when it pays the first instalment) and would assume all obligations of the landlord as of that date. This means all depreciation benefits belong to the SMSF. However on the other hand, it also means that the SMSF has to be responsible for the fit out costs later as well.

Most client who do this deferred purchase arrangement do so because they want to quickly reduce the debt on the property and would be able to pump (in most instances) over $250k - $300k into super without Mr Rudd touching too much of it.

If you do the calculations and cash flow analysis, you will find in most cases that a deferred purchase will be better off both in the short and medium term for you. This is especially the case if you are operating from the commercial property as well - as your super fund will be able to jack up the rent thereby reducing the profits in the business.

If you combine this with a transition to retirement pension, this is powerful stuff.

 

[kum yin lau]

Hi Kublok, THANK YOU thank you thank you.

The explanation is very clear & I might benefit from it. I'm in the transition to retirement phase and have properties still that might be possible to defer transfer.

Have already discovered the 'power' last FY.

KY