Our First Smsf Purchase - A Step By Step Guide

smsf

Interesting stuff I will read not late at night :)

I have been advised that you need at least 250k to start a smsf or the govt agencies frown upon you and may not be complying. Any info on this statement would be helpful from anyone.

Thanks

Sandy
 
Interesting stuff I will read not late at night :)

I have been advised that you need at least 250k to start a smsf or the govt agencies frown upon you and may not be complying. Any info on this statement would be helpful from anyone.

Thanks

Sandy

Sandy

Don't listen to people who are ignorant or who have an interest in keeping your super with them.

The gov agencies don't care what amount of money you start your SMSF with.

As long as you follow what's written in your SMSF's investment strategy
and don't go on a shopping spreed with your super you'll be fine.
Remember that you are not on your own, you're surrounded by professionals and your accountant and the SMSF auditor will make sure you comply.
 
enough ?

Hi All

I was wondering if the IP was negative who puts in the short fall , the super or could i do it , or
Does the IP have to be self funding from the super ?

Stuart
 
Hi All

I was wondering if the IP was negative who puts in the short fall , the super or could i do it , or
Does the IP have to be self funding from the super ?

Stuart

The super fund would have to cover the expenses and any shortfall from its own funds.

If your SMSF does not have enough funds, you could salary sacrifice or you could contribute direct
 
Leave a buffer

The super fund would have to cover the expenses and any shortfall from its own funds.

If your SMSF does not have enough funds, you could salary sacrifice or you could contribute direct

Agree. In addition to what BV has said, it may be prudent to leave an initial buffer for interest shortfall if the fund is a bit skinny when you start.

This would be needed to appease the lenders I would imagine and to hedge on unforseen early repairs or large bills such as LL insurance, council rates, etc. You can always pay those on quarterly increments, however, a buffer would certainly not hurt ;)
 
so for an EG

buy a 300k house ,
60k deposit
buying costs ( not sure what the ball park is there )

then if there was a shortfall you would put in to the super fund what ever the shortage would be ? ( like you would a bank acc )
stuart
 
Darcy13
This is an unlikely scenario because the lenders won't give you a loan if your super fund can't comfortably meet it's loan obligations so if your employer contrributions don't cover the repayments the lender will ask you to salary sacrifice or they won't give you the loan.

Salary sacrifice is a good way to save on tax because most people would be taxed at 30% and on the other hand super Contributions are taxed at 15%
 
Vendor Finance and SMSF

I am excited about this thread as there is so much good information here guys, thanks so much.

I have been thinking about buying property with my SMSF (which is very small) using vendor finance. The way I see it, it means that I can get into a property with a very small deposit, have the super fund pay any shorfalls and I don't have the huge entry costs.

In five years when prices have gone up a bit, then my super fund can get a loan and hopefully the LVR will only be 60-70%.

I am not fully conversant with all the compliances etc but has anyone else considered this as well, and does anyone have any experience with it as yet?

I am fully conversant with vendor finance, its just the application of the SMSF angle that I am thinking about.
 
I am fully conversant with vendor finance, its just the application of the SMSF angle that I am thinking about.

A finance agreement with a vendor would need to be written very carefully and to be screened by a solicitor for compliance and to make sure your SMSF's other assets are protected.

IMO if you can get vendor finance go on your own without the SMSF because the income tax benefits are higher outside super.

If you have finance questions send them to MikeF and he'll assist you
 
SMSF and a Vendor Financed Property

IMO if you can get vendor finance go on your own without the SMSF because the income tax benefits are higher outside super.



Hi Bill and thanks for your reply.

Actually we don't have a high income, and we can't salary sacrifice, so we were thinking that rather than just contribute cash to our SMSF account it would make sense to put it into a property where there are tax benefits and where there is a possibility of capital gain down the track which is treated more favourably in taxation terms in a SMSF (I think) than a property in our own name.
Would that be right or not?
regards Dianne
 
Actually we don't have a high income, and we can't salary sacrifice, so we were thinking that rather than just contribute cash to our SMSF account it would make sense to put it into a property where there are tax benefits and where there is a possibility of capital gain down the track which is treated more favourably in taxation terms in a SMSF (I think) than a property in our own name.
Would that be right or not?
regards Dianne

Dianne

Ok your situation is unique.
IMO it can be done provided you address the compliance issue of the loan documents with your solicitor and accountant.

But if you don't have much income then there won't be much money flowing into your super either so you'll need to somehow contribute to make the deal work.

If you don't want to contribute into your super which will add to the work of your accountant you could keep things simple and cover some of the property expenses by paying cash

cheers
 
Dear Bill and every body else ....

I note that Bill has purchased his first property with his SMSF using the borrowing structure and some others are planning to get into that situation and looking for information. There is a 11 page word document on the below webpage – which demystifies SMSF borrowing rules – click below

http://www.trustdeed.com.au/tools_pct.asp?action=1&link=tools&page=pct


Strategies of SMSF borrowing

Buying in the name of the SMSF has many advantages and I noticed that some of them have been highlighted by others. The good news is that you aware of only half of the fun which is

1) SMSF can borrow
2) Salary Sacrifice can pay off the loan
3) Your SMSF can invest in IP

The other half of the fun is below

1) SMSF can pay no tax on rental income;

2) When you sell the property - SMSF can pay no Capital Gain Tax;

3) When you retire - you can retire (live) in this property.



Let me explain each one of them below

1) Tax Free Income

A SMSF has two lives, 1st is the accumulation phase and the 2nd is pension phase - pensions or income streams can be commenced from a SMSF for members who have reached their preservation age - those born before 1960 it is 55 years. One point to note here is that superannuation interest paying a pension do not pay any tax - hence when you turn 55 (even working - transition to retirement pension) you must convert your fund to pension phase - then all the income / rent will not pay any tax.

How to covert accumulation account to pension account read below


http://www.trustdeed.com.au/tools_commence.asp?action=1&link=tools&page=commence

If you are in pension phase, any interest paid is also not tax deductible as you are not generating assessable income, hence purchasing property with borrowing, if you are already in pension phase does not make much sense.


2) Pay No CGT

As above, when the fund moves to pension phase - you can sell the property (even to yourself) - the sale will be recorded by the SMSF and NO TAX will be paid by the fund. If you sell the asset whilst the fund is in "borrowing phase" - the lender will be paid out first, the amount owed, the balance will then be returned to the SMSF.


The above two issues will make you wonder - why bother with buying property out of super - that's right folks! Investors who purchase property out of super will pay CGT if they sell their property and if they decide not to sell while they are alive - the kids (or grandkids) will pay CGT when the property is sold as the kids acquire the cost base of property on death.


3) Retire in the property

Most of us live in homes with families - once they grow up - we do not need that extra space and we "downsize" or take that "sea change" which we were waiting for our retirement years.

Well, with your SMSF borrowing this is possible. What you need to do is decide where you would like to retire, say gold coast, buy the property now with borrowing and use salary sacrifice to pay the property off - remember you cannot live in a residential property owned by the SMSF (Sole Purpose test) - but once you are ready, the SMSF can then sell the property to you at Market Value - I am assuming that you will be in pension phase and the SMSF will not pay any tax on the sale.

If you do not have the money to purchase the property - say it is worth $2M in 20 years time - then you can use the bank to borrow the money for one minute - the way it works is that the bank will give you the money in your bank account - from your bank account it goes in SMSF bank account for the purchase price - since you are on pension - you can make a 100% withdrawal as an account based pension - then the money comes back into your bank account with which you can return to the bank - all that happens in a minute - the money travels into your bank account from the bank then to the SMSF then back to your account and then back to the bank.

The SMSF cannot pay the property "In specie" as a pension to you - as only cash can be paid as a pension - for "In specie" the fund has to be accumulation phase - which means at the time of transfer - the fund will have to pay CGT. The above method is the only way it can be done. Further, now the property will be PPR, kids can get the property without paying any CGT on sale.


Other Strategies

The above are only some of the strategies available, there are many other strategies.


Common mistake in a bare trust transaction

After helping over 200 accountants and their clients in setting up these structures, one mistake which is usually made by purchasers is that they have already exchanged the contract with the wrong party, sometimes it is with the trustee of the SMSF and sometimes in the name of the members (if the idea was to purchase the property outside of super) – this mistake was done by Bill as well where he created the Bare trust after the purchase two days after the purchase date.

In my opinion, the bare trust should be created on the date of the exchange of contract (which is your purchase date). Sometimes it is not impossible to achieve this, since the trustee of the bare trust is not created (a company) and by the time you have already exchanged.

The solution to this problem is very simple, all you have to do is rescind the old contract, create the company and exchange correctly with the “trustee of the bare trust”.

Manoj Abichandani
SMSF Specialist Advisor
SMSF Specialist Auditor
B. Bus (UTS) PNA FTIA LREA SSA SSAud
 
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Other Strategies

The above are only some of the strategies available, there are many other strategies - I encourage readers to visit www.trustdeed.com.au and click on "previous newsletters” and read other strategies available and subscribe to my free newsletter service.


I had a look at your website but I could not get any previous newsletters bar 1, they all seemed to be emails advertising seminars that were held in the past. The only .ppt I could download was the borrowing from a bank one, the rest weren't there.
 
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Bill

In NSW when you purchase a property and exchange contracts, you need to put the name of the purchaser, since the company is not yet created, it will difficult to exchange on the assumption that you will get the same company name from ASIC.

Remember most borrowers want the trustee of the bare trust on the front page of the contract, who is the apparent owner, instead of the "real owner" who is the trustee of the SMSF, unless you are borrowing from CBA, who want it the other way round.

Point taken.... your method can be cheaper..


Podder

there is a logo which says "click here to view our previous newsletter" it is just above the Chat button and in white writing on orange background.

You can click below to the link if you want to go directly to that page

http://archive.constantcontact.com/fs040/1101690521887/archive/1102017007669.html

The 11 page word document is a link on the first paragraph of the below page

http://www.trustdeed.com.au/tools_pct.asp?action=1&link=tools&page=pct

The paragraph is below - click on the download button below on the website

Before you read further information on this page – we strongly recommend you to download and read our information document which describes how our borrowing structure works and how you can use borrowing strategy effectively within your Self managed super fund (SMSF).



Manoj Abichandani
SMSF Specialist Advisor
SMSF Specialist Auditor
B. Bus (UTS) PNA FTIA LREA SSA SSAud
 
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Point taken.... your method can be cheaper..

Manoj

no worries mate, I agree though that it's better to have the bare trust setup earlier or you could be in the unfortunate situation where the company name you want to use for your bare trust (and which you've used when you signed the contract) is already taken by someone else :eek:
 
Company first

Manoj

no worries mate, I agree though that it's better to have the bare trust setup earlier or you could be in the unfortunate situation where the company name you want to use for your bare trust (and which you've used when you signed the contract) is already taken by someone else :eek:

What about setting up the trustee Co first (as an empty shell) in the name selection that pleases (with directors being the members of the SMSF) as this is what will sign on the contract and what will appear on title anyway.

Once purchase is unconditional, then go about setting up the bare trust.

BTW does each lender have their own "version" of this bare trust that they will use for the loan or are there generic products that will satisfy ATO and SIS and the lenders?

I haven't gone thru with a purchase however did have one under contract and rescinded for various reasons. I did however rush to have the brand new (never traded) trustee company set up to sign the contract. It's still there waiting for a future warrant type purchase and at the very least my daughter has her name as Pty Ltd in case she is ever her own "brand" ;)
 
Michael

It sounds like a good idea and yes the bare trust documents are written specifically for each lender, however, I am told that they can be changed if required
 
Thanks Bill.

I see that (set up Trustee Company) as the first step in the process anyway, and with nominal cost.

This thread continues to be a great resource to those venturing down this SMSF leveraging path.
 
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