It is very hard to clawback money put into superannuation. So it is stronger than other forms of asset protection.
SMSF and Property in it - Benefits
- Thread starter paulz
- Start date
It is very hard to clawback money put into superannuation. So it is stronger than other forms of asset protection.
Thank you for your answers, Terry and Aaron.
The asset protection aspect is clearer to me now.
May I know what factors should be thought about in order for to be able to answer the first two questions?
(I am at the stage where I don't know what I don't know).
Thank you again.
PS. I am sorry if this appears to be a "hijack" of this thread in anyway.
I just thought it is relevant to the topic and the answers to my questions can benefit others who read this thread too.
The asset protection aspect is clearer to me now.
May I know what factors should be thought about in order for to be able to answer the first two questions?
(I am at the stage where I don't know what I don't know).
Thank you again.
PS. I am sorry if this appears to be a "hijack" of this thread in anyway.
I just thought it is relevant to the topic and the answers to my questions can benefit others who read this thread too.
If you arrange an off set loan for the property, this overcomes problem number 1.
How does the offset loan help with refinancing to get equity out of the property?
Presumably this would enable you to take advantage of what you have paid off the loan, but not of any capital growth?
Maybe partially. Instead of paying down the loan the fund accumulates cash in the offset which can then be used as deposit for the next one. This will save interest in the meantime.
But as Geoff says you won't be able to access equity due to any capital growth.
1. This would depend on how much cash you have in super, and/family has in super.
It would also depend on potential returns, opportunity costs and how much control you want.
Also your situation. eg. you may own a commercial property and be running a business in this property. It may be a good idea to sell this property to your SMSF for asset protection, release of cash (to pay down your home loan) and tax reasons - pay rent to your own SMSF and claim it as a deduction saving say 30% tax but the fund only paying 15% tax
2. Some benefits will be financial and easy to calculate others will be no financial - asset protection, estate planning etc
I would suggest you do some spreadsheets and play around with some numbers for the financial aspects. See if your potential returns could justify the cost and hassle of setting up and running a fund.
Which is a massive limitation when you're growing your portfolio.
It is, but you could still be growing your portfolio outside of your SMSF at the same time.
I think it was Euro who mentioned going Guarantor for your SMSF Loan would impact when assessed as the Guarantee/Loan counts, but the rental income doesn't when looking at finance outside of the SMSF?
SMSF & Property
Can a SMSF Neg gear...Sure. One overlooked issue with SMSFs acquiring property is that the loss from rental activities (an investment) can offset taxes on contributions. That said, we arent talking big $$ and with a tax rate of 15% the benefits are slim. For example if loss was $15K and fund had $15k of contributiosn the benefit is $2250. That not exactly sheep stations.
A SMSF cant have recourse however...One thing lenders are getting good at with SMSF loans is knocking back deals that dont stand up on cashflow. The bank doesnt want anyone to rely on contributions to support the costs - They want the IP to pay its own way.
One option may be to use a NSW Land Tax unit trust that is ungeared (IP cannot be used as loan security). The SMSF invests in the trust say 40% with Mum and Dad borrowing the other 60% of value using other loan security such as MR. They use $$$ to buy units in trust and Trust issues SMSF other 40% units. So outcome is SMSF is positive geared and personal returns have neg gearing since Mum and Dad will also claim interest in their returns against their share of trust income. Overtime as SMSF cashes up Mum or Dad could REDEEM and reissue new units (Dont transfer !!) to SMSF so it acquires more and more of the IP beneficial interest. Small CGT on each such change but no duty if IP is valued under $1m.
This is an innovative strategy that is overlooked by most. Far cheaper than SMSF loans and far more flexible. Catches - 1. IP cant be security and (2) Trust must carefully follow rules as breaches of SIS Reg 13.22C and 13.22D are fatal.
Paul
Can a SMSF Neg gear...Sure. One overlooked issue with SMSFs acquiring property is that the loss from rental activities (an investment) can offset taxes on contributions. That said, we arent talking big $$ and with a tax rate of 15% the benefits are slim. For example if loss was $15K and fund had $15k of contributiosn the benefit is $2250. That not exactly sheep stations.
A SMSF cant have recourse however...One thing lenders are getting good at with SMSF loans is knocking back deals that dont stand up on cashflow. The bank doesnt want anyone to rely on contributions to support the costs - They want the IP to pay its own way.
One option may be to use a NSW Land Tax unit trust that is ungeared (IP cannot be used as loan security). The SMSF invests in the trust say 40% with Mum and Dad borrowing the other 60% of value using other loan security such as MR. They use $$$ to buy units in trust and Trust issues SMSF other 40% units. So outcome is SMSF is positive geared and personal returns have neg gearing since Mum and Dad will also claim interest in their returns against their share of trust income. Overtime as SMSF cashes up Mum or Dad could REDEEM and reissue new units (Dont transfer !!) to SMSF so it acquires more and more of the IP beneficial interest. Small CGT on each such change but no duty if IP is valued under $1m.
This is an innovative strategy that is overlooked by most. Far cheaper than SMSF loans and far more flexible. Catches - 1. IP cant be security and (2) Trust must carefully follow rules as breaches of SIS Reg 13.22C and 13.22D are fatal.
Paul
Is it possible to sell a residential IP to your self managed super fund?
For example could I set up a SMSF, and then get it to buy one of my IP's from me (and then leave it in the SMSF for the long term)?
The profits of the sale could then be used to pay down other personal debt such as a PPOR?
For example could I set up a SMSF, and then get it to buy one of my IP's from me (and then leave it in the SMSF for the long term)?
The profits of the sale could then be used to pay down other personal debt such as a PPOR?
Paul,
Why do you say not to transfer the units? Stamp duty in NSW on the transfer of shares and units is due to be abolished on 1 July this year. And wouldn't the trustee redeem the unit and issue new ones.
I recommend that everyone buying property in NSW, that will not be a main residence, seriously consider using a fixed unit trust because of all the added flexibility it gives.
Yes, this has to be seriously considered and factored in.
No allowed on residential property but possible on business real property.
This is why you should seriously consider buying in a fixed unit trust.
Imagine your property increases in value by $200,000 and you have $200,000 in your SMSF. Your SMSF could buy the units from you and the $200,000 paid to your from the SMSF. You could then use this $200k to pay down your non deductible home loan.
Added bonus is that your SMSF now has a property inside it which will get all the normal tax benefits of a SMSF.
Thank you, TerryW!
Much appreciate the food for thoughts.
I have more questions related to the answers you gave above.
Should I start a new thread, or keep going in this thread?
I suppose one of the fatal rule is that the IP cannot be used as a PPOR.
