Self-Managed Superannuation
- Thread starter TheBacon
- Start date
Hi TheBacon and Bundy
Had a chat with my accountant last year and suggested a joint venture between me and my SMSF. SMSF provides deposit, I provide balance via investment loan. All expenses and income split in proportion. He thought it would work. Check it out with your tax agent. May be a way for many of us to use our super funds to get into property.
Neil
Had a chat with my accountant last year and suggested a joint venture between me and my SMSF. SMSF provides deposit, I provide balance via investment loan. All expenses and income split in proportion. He thought it would work. Check it out with your tax agent. May be a way for many of us to use our super funds to get into property.
Neil
TheBacon,
I'd love to have used an SMSF for property purchase. But I don't know if that could work- unless the SMSF purchased something outright. Neil's posting suggests something- but I'd be looking for corroboration before going down that path.
I thought that Chris Batten (http://www.chrisbatten.com.au/) was suggesting a way that you could go down that path. But I did not know enough of accounting to appreciate what that would mean. Thoughts from Dale would be appreciated (I think it might be touching the hybrid trust which Dale has been investigating).
If leveraging is not available to an SMSF, I would CERTIANLY be investigating Steve Navra's fund, when it becomes available early in 2003- http://www.navra.com.au/
Steve is a regular contributor, and a person who has helped shape some of my thinking at least.
I'd love to have used an SMSF for property purchase. But I don't know if that could work- unless the SMSF purchased something outright. Neil's posting suggests something- but I'd be looking for corroboration before going down that path.
I thought that Chris Batten (http://www.chrisbatten.com.au/) was suggesting a way that you could go down that path. But I did not know enough of accounting to appreciate what that would mean. Thoughts from Dale would be appreciated (I think it might be touching the hybrid trust which Dale has been investigating).
If leveraging is not available to an SMSF, I would CERTIANLY be investigating Steve Navra's fund, when it becomes available early in 2003- http://www.navra.com.au/
Steve is a regular contributor, and a person who has helped shape some of my thinking at least.
I sugest you read this link from the ATO
http://www.ato.gov.au/content.asp?doc=/content/Professionals/super/19109.htm
I think the defining statement there is "has no assets with a charge over them" to me that means no mortgage over an asset.
I could be wrong and it wouldn't be a first
so check with someone who knows more than me
bundy
http://www.ato.gov.au/content.asp?doc=/content/Professionals/super/19109.htm
I think the defining statement there is "has no assets with a charge over them" to me that means no mortgage over an asset.
I could be wrong and it wouldn't be a first
so check with someone who knows more than me bundy
Originally posted by geoffw
I'm hunting for loophole snow even as I speak... but I think it does a lot to covering loopholes, and I don't think an amateur like myself will find any
Good luck GW I think they closed them in 99?
The way it reads to me you cant invest in geared funds either?
bundy
I think this link tells it all
http://www.ato.gov.au/content.asp?doc=/content/Professionals/super/19097.htm
looked at it and think it's not worth my effort to start.
bundy
http://www.ato.gov.au/content.asp?doc=/content/Professionals/super/19097.htm
looked at it and think it's not worth my effort to start.
bundy
TheBaron,
I have a SMSF and property IS a definite NONO if you cannot buy it outright.
Joint purchasing a property with a person (with no mortgage or it's illegal) is also dangerous if the person is the trustee or director of the trustee company as you are not allowed to personally realise a benefit from investments by the SMSF. I've heard a story about a guy who invested his SMSF in paintings, then hung them on the walls of his home - almost got done for realising a benefit from them and eventually had to put them away & not look at them to keep it legal.
You need to read up on the ATO's docs about SMSFs....strangely enough you can invest in a variety of share market products that would fail the SMSF guidelines when applied to property - yes there is a big bias in pushing Super Funds into the share market and keeping them out of property - I don't know why (anyone heard of the saying 'safe as shares?'
Cheers,
Aceyducey
I have a SMSF and property IS a definite NONO if you cannot buy it outright.
Joint purchasing a property with a person (with no mortgage or it's illegal) is also dangerous if the person is the trustee or director of the trustee company as you are not allowed to personally realise a benefit from investments by the SMSF. I've heard a story about a guy who invested his SMSF in paintings, then hung them on the walls of his home - almost got done for realising a benefit from them and eventually had to put them away & not look at them to keep it legal.
You need to read up on the ATO's docs about SMSFs....strangely enough you can invest in a variety of share market products that would fail the SMSF guidelines when applied to property - yes there is a big bias in pushing Super Funds into the share market and keeping them out of property - I don't know why (anyone heard of the saying 'safe as shares?'
Cheers,
Aceyducey
I have been looking at this option pretty closely and believe it is possible. I'm still researching and will come back once I've clarified the situation.
This from the CPA website:
"The bill also appears to permit non-business property to be jointly owned by the superannuation fund and a related party as tenants in common, and then leased to a third party."
http://www.cpaaustralia.com.au/03_publications/02_aust_cpa_magazine/1999/10_oct/3_2_10_31_slab4.asp
This from the CPA website:
"The bill also appears to permit non-business property to be jointly owned by the superannuation fund and a related party as tenants in common, and then leased to a third party."
http://www.cpaaustralia.com.au/03_publications/02_aust_cpa_magazine/1999/10_oct/3_2_10_31_slab4.asp
I have just discussed this again with my accountant. He has set this up for a number of his clients. You can invest in real estate with your smsf and yourself as tenants in common at whatever proportions are contributed to the purchase and income / expenses / deductions are split in the same proportion.
As I understand it the trustees of the smsf must be the same people as the other tenants in common on the title.
I'm still getting into the details about how (if) the property is treated as security for a loan for the component held by yourself (the smsf of course cannot borrow).
So, in theory if you purchase a 300k property 50% smsf and 50% yourself as tenants in common all transactions are split evenly. For the smsf you must have separate bank accounts and annually you must submit a tax return and have the fund audited.
Setup seems to vary from $1000-1500 for the fund and annual costs for ATO compliance are around $1500.
This certainly does not cover all requirements as it is quite complex but it is possible.
As I understand it the trustees of the smsf must be the same people as the other tenants in common on the title.
I'm still getting into the details about how (if) the property is treated as security for a loan for the component held by yourself (the smsf of course cannot borrow).
So, in theory if you purchase a 300k property 50% smsf and 50% yourself as tenants in common all transactions are split evenly. For the smsf you must have separate bank accounts and annually you must submit a tax return and have the fund audited.
Setup seems to vary from $1000-1500 for the fund and annual costs for ATO compliance are around $1500.
This certainly does not cover all requirements as it is quite complex but it is possible.
I believe I have an IP with exactly this arrangement. The ownership is 30% me, 30% my wife and 40% our smsf (tenants in common). The smsf share was paid as cash (i.e. this was our deposit); my wife and I funded our share via a loan. As an smsf cannot be involved with an asset that has a debt associated with it, our loan was secured against our PPOR.
The IP was purchased in 1992 for $125,000 and our strategy at the time was to make contributions to our smsf and use these funds for the smsf to buy my share and my wife's share and we would use this money to pay back the loan. That is, over time our smsf would own 100% of the IP and the loan would be fully repaid.
After setting this up, the Governement changes the rules - smsf could no longer buy assets from beneficiaries - that was fine except they made the rule retrospective. That is, we could NO longer use the smsf funds to buy my share and my wife's share and then use this money to pay back the loan.
Well, the IP is now worth $230,000 and our loan is $90,000. The ownership is still the same - 30% me, 30% my wife and 40% our smsf.
Where does that leave us?? So now, we have $140,000 equity in the IP that we CAN'T use as security (because an smsf cannot be involved with an asset that has a debt associated with it).
Would I do this again?? No way!!!
To get out of this mess (for example, for me to buy out the smsf and unlock the equity in the IP for other investments), then I would have to pay Stamp Duty and and the smsf would have to pay CGT. We are talking over $4,000 and, in reality, nothing is changing (we own 100% of the IP now and we will own 100% after the restructure albeit via different entities). Say goodbye to $4,000!!!
Hey, if I am wrong, can someone let me know!!!. I would appreciate all input.
The IP was purchased in 1992 for $125,000 and our strategy at the time was to make contributions to our smsf and use these funds for the smsf to buy my share and my wife's share and we would use this money to pay back the loan. That is, over time our smsf would own 100% of the IP and the loan would be fully repaid.
After setting this up, the Governement changes the rules - smsf could no longer buy assets from beneficiaries - that was fine except they made the rule retrospective. That is, we could NO longer use the smsf funds to buy my share and my wife's share and then use this money to pay back the loan.
Well, the IP is now worth $230,000 and our loan is $90,000. The ownership is still the same - 30% me, 30% my wife and 40% our smsf.
Where does that leave us?? So now, we have $140,000 equity in the IP that we CAN'T use as security (because an smsf cannot be involved with an asset that has a debt associated with it).
Would I do this again?? No way!!!
To get out of this mess (for example, for me to buy out the smsf and unlock the equity in the IP for other investments), then I would have to pay Stamp Duty and and the smsf would have to pay CGT. We are talking over $4,000 and, in reality, nothing is changing (we own 100% of the IP now and we will own 100% after the restructure albeit via different entities). Say goodbye to $4,000!!!
Hey, if I am wrong, can someone let me know!!!. I would appreciate all input.
KieranK,
You have to pay $4,000 to release $140,000 of equity (minus $4,000)?
Let's see, cost is $4,000. SMSF has 40% which is not usable. $140,000 less $4,000 less $56,000 leaves $80,000.
OK, there's CGT. You imply that the cost of $4,000 includes CGT- but I suspect that's not the case. I don't know how CGT would apply to the SMSF. There's two different ways of calculating CGT acquired in 1992 (as I understand). Simplistically, using the new method, you would get $20,000 each to your income and to your wife's income. Worst case (both on high income brackets) would still leave you with $60K equity. And you could do a lot with that.
Do not try this at home. Seek profesional advice.
All I'm saying is that figures are possibly OK for you, regardless of some high expenses.
Look at all the avenues, open all the doors. When all the doors are closed, check the windows.
You have to pay $4,000 to release $140,000 of equity (minus $4,000)?
Let's see, cost is $4,000. SMSF has 40% which is not usable. $140,000 less $4,000 less $56,000 leaves $80,000.
OK, there's CGT. You imply that the cost of $4,000 includes CGT- but I suspect that's not the case. I don't know how CGT would apply to the SMSF. There's two different ways of calculating CGT acquired in 1992 (as I understand). Simplistically, using the new method, you would get $20,000 each to your income and to your wife's income. Worst case (both on high income brackets) would still leave you with $60K equity. And you could do a lot with that.
Do not try this at home. Seek profesional advice.
All I'm saying is that figures are possibly OK for you, regardless of some high expenses.
Look at all the avenues, open all the doors. When all the doors are closed, check the windows.
