Property purchase using SMSF funds?
- Thread starter futuregrowth
- Start date
Legislation thats supposed to clarify and simplify the process has made it even more confusing. Thanks for nothing drafters. Why can't they be 2 steps ahead of the curve? What else are our tax dollars being spent on? Pay for them to draft the laws then pay again for external lawyers to interpret it 100 different ways. I could just get my hampster to keep turning in his little wheel - it would be far cheaper with the same end result - nothing!
Hi
The practice of having distinct guarantees to allow SMSFs to purchase
property has been done for some time by the Banks. Westpac are asking for such guarantees and it seems clear to me that a public ruling or statute amendment will be required to fix up what has been a sloppy introduction.
asdf you're spot on, where's the proper consultation before the drafting?
Macquarie sitll alive in this space... low risk, high margin. Exactly the type of business to be done in this market.
Westpac launched an offer the other day but god knows how you get it I called their fin planning division as advised... Derrr... Whats an smsf?
Westpac launched an offer the other day but god knows how you get it I called their fin planning division as advised... Derrr... Whats an smsf?
For a rock solid investment that sits perfectly with Superannuation the Macquarie Lever is just too conservative, you're right Retireinvest it's easy money for them. A 70% LVR would be a lot more attainable for investors and still be rock solid.
Westpac are all over the shop with Personal Guarantee demands etc., it doesn't surprise you ran into a brick wall with them.
Westpac are all over the shop with Personal Guarantee demands etc., it doesn't surprise you ran into a brick wall with them.
Out of interest, McCullough Robertson have an interesting podcast transcript up on their website which I find interesting.
At an NTAA seminar I went to recently, there is an issue with a personal guarantee being required by some banks as it may be considered to be non-arms length transaction between the fund and the member and they have asked for clarification from the ATO on this matter. There are also a number of other difficulties where the legislation hits reality which need more clarification.
One thing I found interesting is that people are buying businesses, and buying the business property through the super fund at the same time via a warrant.
At an NTAA seminar I went to recently, there is an issue with a personal guarantee being required by some banks as it may be considered to be non-arms length transaction between the fund and the member and they have asked for clarification from the ATO on this matter. There are also a number of other difficulties where the legislation hits reality which need more clarification.
One thing I found interesting is that people are buying businesses, and buying the business property through the super fund at the same time via a warrant.
Thanks for that link Mry. Groan... yet another area I'll have to get my head around.
Senator Nick Sherry Address to SPAA
The good news is that the government at this stage is continuing to monitor this sophisticated financial investment instrument such as property instalment warrants
see;
http://minscl.treasurer.gov.au/Disp...008/003.htm&pageID=005&min=njs&Year=&DocType=
In his conclusion Senator Sherry mentioned he would be pleased to receive suggestion from both individuals and representative organizations.
I would urge anyone with an SMSF to write to the minister in support of retention of Property Instalement warrants through the use of an SIB Trust (Superannuation investment borrowing) trust.
The retail Superannuation industry through the Australian Financial Review continues to spin its web of half truths and beat up stories on how SMSF's are rorting the system.
On another note the credit crunch continues unabated and its a moot point that as a significant portion of the big four banks receive their funds for property from overseas as the demand for funds for business, Commercial property and residential real estate exceeds Australian deposits that the banks take in. This means that there is going to be insufficient cash to fund the demand. It will be small Business that will see limitations first and I suspect that will make it more difficult to access Property Warrants at reasonable commercial rates
The good news is that the government at this stage is continuing to monitor this sophisticated financial investment instrument such as property instalment warrants
see;
http://minscl.treasurer.gov.au/Disp...008/003.htm&pageID=005&min=njs&Year=&DocType=
In his conclusion Senator Sherry mentioned he would be pleased to receive suggestion from both individuals and representative organizations.
I would urge anyone with an SMSF to write to the minister in support of retention of Property Instalement warrants through the use of an SIB Trust (Superannuation investment borrowing) trust.
The retail Superannuation industry through the Australian Financial Review continues to spin its web of half truths and beat up stories on how SMSF's are rorting the system.
On another note the credit crunch continues unabated and its a moot point that as a significant portion of the big four banks receive their funds for property from overseas as the demand for funds for business, Commercial property and residential real estate exceeds Australian deposits that the banks take in. This means that there is going to be insufficient cash to fund the demand. It will be small Business that will see limitations first and I suspect that will make it more difficult to access Property Warrants at reasonable commercial rates
Non-Recourse,
The AFR is so biased, every week there is an article about the Warrants and how they will be out of control with SMSF. As you've said all we can do is lobby Mr Sherry ourselves and show how this legislation can be good for investors who want to be able to safely fund their retirement needs.
The AFR is so biased, every week there is an article about the Warrants and how they will be out of control with SMSF. As you've said all we can do is lobby Mr Sherry ourselves and show how this legislation can be good for investors who want to be able to safely fund their retirement needs.
My SMSF has gone into a joint Venture with one of my Property Trusts. My accountant set this up for me.
So in actual fact it is the Property trust that has borrowed the money and the SMSF invests. It is perfectly legal..
However, their are very strict rules and regulations regarding the management of it and the SMSF is audited by the ATO every year. The ATO is the regulator.
So in actual fact it is the Property trust that has borrowed the money and the SMSF invests. It is perfectly legal..
However, their are very strict rules and regulations regarding the management of it and the SMSF is audited by the ATO every year. The ATO is the regulator.
Geared or ungeared property trust
My understanding is that your super fund cannot invest in a related trust unless that trust is not geared. I would be interested to know how your accountant structured that. For example if you had borrowed the money in your name and the purchased units in the property trust which then used those funds to purchase a property outright OK. However if in borrowing those funds there was a charge over the assets in the property trust I would think the ATO would deem this to be in contravention of the act.
My understanding is that your super fund cannot invest in a related trust unless that trust is not geared. I would be interested to know how your accountant structured that. For example if you had borrowed the money in your name and the purchased units in the property trust which then used those funds to purchase a property outright OK. However if in borrowing those funds there was a charge over the assets in the property trust I would think the ATO would deem this to be in contravention of the act.
some SMSF questions of clarification
Hi - Mind if I try to clarify things for myself & ask some dumb questions - shoot me down if I've got it wrong. Questions:
Hi - Mind if I try to clarify things for myself & ask some dumb questions - shoot me down if I've got it wrong
. Questions:- A tax benefit on IP loan interest is possible in SMSF?
- Assuming yes, this negative gearing benefit is at super tax rate of 15%? (not the individual's marginal tax rate, say of 40%)
- There is the ability to salary sacrifice personal contributions towards repayments which then attract only 15% tax
- BIG QUESTION: My work's super company (QSuper) have said if one does use salary sacrifice it has to go into QSuper. Is this correct? Should I check whether this is really the case with my employer or someone?
- Following on from last point, if I have to salary sacrifice into QSuper is there a way to move it out of QSuper into my own SMSF with no additional (or minimal) tax/fee's? Again the object being to take the opportunity to help service the shortfall with pre-tax dollars.
- From a CGT minimisation strategy how does use of a SMSF compare to use of a Trust?
- Can one move an IP into a SMSF a year before retirement without attracting stamp duty or CGT?
- If you don't use a SMSF and have IPs, after one retires is it the case you do have to pay normal tax on income? (i.e. is there any retiree breaks that exist in the tax system already anyway without having to go to a SMSF)
- What is the current thinking re how to incorporate a SMSF into one's IP strategy? For example will it boil down to say, buy 1 or 2 IP's via a SMSF until you reach your servicing capability (which is limited via salary sacrifice arrangement for the shortfall), or buy all IP's via the SMSF (if this is possible without some limits being hit), or don't use SMSF as one can achieve the same results via normal IP/trust mechanisms?
Hi - Mind if I try to clarify things for myself & ask some dumb questions - shoot me down if I've got it wrong
- A tax benefit on IP loan interest is possible in SMSF?
- Assuming yes, this negative gearing benefit is at super tax rate of 15%? (not the individual's marginal tax rate, say of 40%)
- There is the ability to salary sacrifice personal contributions towards repayments which then attract only 15% tax
- BIG QUESTION: My work's super company (QSuper) have said if one does use salary sacrifice it has to go into QSuper. Is this correct? Should I check whether this is really the case with my employer or someone?
- Following on from last point, if I have to salary sacrifice into QSuper is there a way to move it out of QSuper into my own SMSF with no additional (or minimal) tax/fee's? Again the object being to take the opportunity to help service the shortfall with pre-tax dollars.
- From a CGT minimisation strategy how does use of a SMSF compare to use of a Trust?
- Can one move an IP into a SMSF a year before retirement without attracting stamp duty or CGT?
- If you don't use a SMSF and have IPs, after one retires is it the case you do have to pay normal tax on income? (i.e. is there any retiree breaks that exist in the tax system already anyway without having to go to a SMSF)
- What is the current thinking re how to incorporate a SMSF into one's IP strategy? For example will it boil down to say, buy 1 or 2 IP's via a SMSF until you reach your servicing capability (which is limited via salary sacrifice arrangement for the shortfall), or buy all IP's via the SMSF (if this is possible without some limits being hit), or don't use SMSF as one can achieve the same results via normal IP/trust mechanisms?
1-3. Negative gearing doesn't really work within a SMSF, as there's little to link your own income to the trust. You can salary sacrifice your income to the SMSF at a tax rate of 15% on the income. You don't get the negative gearing, but you may save more by paying only 15% through the SMSF. This could also be a great way to buy older property where you don't get depreciation allowances which would minimise the gearing benifits. Keep in mind your complusary 9% contribution also contributes to the shortfalls.
4. I could be wrong, but I beleive you have a choice of who to use as your super funder without restriction. Your employer may not support you and make the additional contributions for you, but you should be able to work around this through your accountant.
5. Your accountant or super fund advisor should be able to help you move from one fund to another.
6. A SMSF can compaire very favorably to a regular trust for CGT purposes. With a regular trust, you will have to pay some CGT as the trust capital gains is assessed similar to income. It can be minimised, but in most cases there is some CGT to be paid. The SMSF can eliminate this completely.
7. I believe that there are some things you can do to move a property to a SMSF and minimise the CGT. It's a bit specific, so an accountant familiar with these issues would probably be best to get the appropriate advice from.
8. Implenting a SMSF into an overall strategy is going to be different for everyone. For some, the prospect of volantary contributions at 15% tax is attractive. Others have geared their existing investments so they minimise tax to the point that this would actually cost them more. Your approach may also depend on the property you're purchasing. If the SMSF and property purchase can be set up that shortfalls are covered by your compulsory contributions, then you may want to proceed simply because you like the idea of property investment over other forms of investment for your super. A business owner with great cashflow may use this to get money out of the business at only 15% tax. The time until retirement also comes into it.
This is a very complex subject and not to be entered into lightly. Good advice from an appropirate qualified professional is essential. I'd suggest that self education is non-negotiable. The education from this thread is a great start, but as everyone will have differences in their financials, you need to make sure you carefully consider the issues as someone elses solution may not apply to yourself at all.
Having said all that, it's a great opportunity in the right circumstances. It definitely merrits consideration.
Property development within the superfund
Thanks for the link Mry. It is an interesting discussion. I an interested in purchasing a property from my business and once purchased, we ould have to make some substantial changes. It seems like it is a 'grey area' - I hate it when my accountant uses those terms. It seems quite a trap. May people are likely to purchase a property and then some time down the track would want to do substantial renovations or rebuild or whatever. There seem to be so many reasons why one would wish to do some development work, and it the superfund instalment strategy does not support it, that must be a significant deterrent to purchasing.
What happens if the house gets termites and you decide to pull it down? Can you rebuild something better. Can I buy a couple of houses and knock them down and run my business from the site - planning approval permitting? I am quite confused!!
BigKidz
Thanks for the link Mry. It is an interesting discussion. I an interested in purchasing a property from my business and once purchased, we ould have to make some substantial changes. It seems like it is a 'grey area' - I hate it when my accountant uses those terms. It seems quite a trap. May people are likely to purchase a property and then some time down the track would want to do substantial renovations or rebuild or whatever. There seem to be so many reasons why one would wish to do some development work, and it the superfund instalment strategy does not support it, that must be a significant deterrent to purchasing.
What happens if the house gets termites and you decide to pull it down? Can you rebuild something better. Can I buy a couple of houses and knock them down and run my business from the site - planning approval permitting? I am quite confused!!
BigKidz
Hi all,
I don't mean to hijack this thread....but after reading a lot of posts on this subject I thought it may be a good idea to hold our next SIG Meeting on this subject. Pat was unfortunately not available - however MikeF (Mike Feltscheer) has graciously agreed to front our our next Meeting on May 5th.
He will talk about financing property - but also has a very good grasp of the concept being the accouting involved as well.
The meeting is here - so Sydney people hope to see you all !!
I don't mean to hijack this thread....but after reading a lot of posts on this subject I thought it may be a good idea to hold our next SIG Meeting on this subject. Pat was unfortunately not available - however MikeF (Mike Feltscheer) has graciously agreed to front our our next Meeting on May 5th.
He will talk about financing property - but also has a very good grasp of the concept being the accouting involved as well.
The meeting is here - so Sydney people hope to see you all !!
ATO Media release on this issue
Hi
There was an ATO media release trying to clarify this issue a little.
http://www.ato.gov.au/corporate/content.asp?doc=/content/00132082.htm
Bigkidz
Hi
There was an ATO media release trying to clarify this issue a little.
http://www.ato.gov.au/corporate/content.asp?doc=/content/00132082.htm
Bigkidz
