Property in self managed super funds

[888Katone]

Does anyone know if you can do the following:

We have an investment unit which is too negatively geared for our liking - however the capital gain it has already received is a big plus for keeping it.

We are thinking of putting it into a self managed super fund in order to increase equity in it - in turn to help our cash flow for purchasing more positively geared properties. We would be using mainly my super -and a little bit of my husbands - but the majority of his would remain with his employer.

Are able to apply a portion of your super into a self managed fund as in my husbands case (all of mine would go into it but only 30,000 of his).

Are you able to borrow against equity built up in properties that are held in self managed super funds ?

What happens to the rent that is received from the property in such a fund ?

Any experts out there that can help would be much appreciated

 

[geoffw]

I'm no expert.

But I believe there are rules against a super fund buying properties from related entities.

And no, an SMSF cannot borrow. A big minus for people who are into increasing their borrowings against increasing equity.

 

[wylie]

I thought I read recently where the rules will be (or have just been) changed to allow SMS funds to be able to borrow to buy property.

Can anybody confirm this?

Maybe I dreamed it

I don't have a SMS fund so didn't take too much notice, but thought that is what I heard.

 

[geoffw]

I thought I read recently where the rules will be (or have just been) changed to allow SMS funds to be able to borrow to buy property.

Can anybody confirm this?

There have been several threads in the past. It can be done using warrants- one thread:

http://www.somersoft.com/forums/showthread.php?t=37030

There have been others.

 

[josko]

Hi there,

There are two ways you can do this:

I have gone with this first way as it was the ONLY way at the time I set it up.

You set up two entities.
1. SMSF - which yes can be a part of your husbands super and all of yours if you like.
2. A trust - this can be an already existing trust or a new one. Your accountant must advise you on the type and set these up for you.

The two "entities" go into a Joint Venture together.
The entities SMSF and Your Trust then purchase a property together.
As the SMSF cannot borrow money, it is the trust that is responsible for the mortgage.

Therefore the SMSF is seperate and has not borrowed money and the Your Trust is responsible for the loan.

The proportion of your invested SMSF into the property is treated as the investment for the Super Fund and the rental income and Capital Gain will be proportioned to this accordingly.

The SMSf is regulated and audited every year by the ATO and there are very strict rules you have to stick to.

The Joint Venture needs to be set up by the accountants that "happen" to be ATO accountants. Your accountant should be able to organise this.
needless to say there is a huge fee of about $8000. This was a couple of years ago though. This fee can come from your SMSF.

I hope I have explained this so you can understand. I'm not an accountant but this is how it is done and it is perfectly legal or course.

The other way to do it is only relatively new and I have not enquired obviously as I haven't needed to. Check with your accountant.

But I believe there are rules against a super fund buying properties from related entities.

This is correct.

 

[Pushka]

Hi there,

There are two ways you can do this:

I have gone with this first way as it was the ONLY way at the time I set it up.

You set up two entities.
1. SMSF - which yes can be a part of your husbands super and all of yours if you like.
2. A trust - this can be an already existing trust or a new one. Your accountant must advise you on the type and set these up for you.

The two "entities" go into a Joint Venture together.
The entities SMSF and Your Trust then purchase a property together.
As the SMSF cannot borrow money, it is the trust that is responsible for the mortgage.

Therefore the SMSF is seperate and has not borrowed money and the Your Trust is responsible for the loan.

The proportion of your invested SMSF into the property is treated as the investment for the Super Fund and the rental income and Capital Gain will be proportioned to this accordingly.

The SMSf is regulated and audited every year by the ATO and there are very strict rules you have to stick to.

The Joint Venture needs to be set up by the accountants that "happen" to be ATO accountants. Your accountant should be able to organise this.
needless to say there is a huge fee of about $8000. This was a couple of years ago though. This fee can come from your SMSF.

I hope I have explained this so you can understand. I'm not an accountant but this is how it is done and it is perfectly legal or course.

The other way to do it is only relatively new and I have not enquired obviously as I haven't needed to. Check with your accountant.

This is correct.

This is the Unit Trust set up that I referred to in your other post about this, and my understanding is that these are no longer allowed, and existing ones must be phased out by next year. Your accountant will know.

 

[josko]

Pushka: This is the Unit Trust set up that I referred to in your other post about this, and my understanding is that these are no longer allowed, and existing ones must be phased out by next year. Your accountant will know.

Hi there Pushka,

They are still allowed but the new setup is going to be the only choice as you say in a year or so. Existing ones will not be "phased out".

I have rung my accountant and it is called a Warrant. It will allow the SMSF to borrow but ready for the fees? $25,000 + legals etc. I thought I'd paid a fortune! Huh!

It also depends on the way your accountant sets this up.. Get yourself a good property accountant guys.

So if I was anyone out there wanting to do this I'd be setting up the Unit Structure now!

 

[Pushka]

OK Josko, I am interested then! Except for those fees! Wow, who gets them? The accountant or the ATO?

 

[josko]

The ATO accountant and their Solicitor gets the fees with the JV set up and then my accountant charged about $800 from memory to set the whole deal up, and I'm only guessing but I bet the ATO get's a huge chunk if not all the fee for the Warrent.

AS SMSF's are regulated by the ATO, and then for my accountant to say there is a set cost again, must mean they've named their price for giving us the privilege.

When I set my JV up and asked my accountant - why the huge cost, he replied more or less - why not when there is no other way to do it, they can charge what they want!