SMSF Investing

[tobe]

I dont know enough about SMSF, ive avoided it because I want to be well and truly retired prior to 55. To me, super money is just a waste, gathering dust.

Anyway, I had a client came in telling me a company and a SMSF could be both on the title to a property. the SMSF could borrow for their portion, or some such.

Seemed a bit strange, and at odds with the limited amount of knowlede I have about the subject.

anyone with knowledge care to ellaborate?

 

[Terry_w]

I dont know enough about SMSF, ive avoided it because I want to be well and truly retired prior to 55. To me, super money is just a waste, gathering dust.

Anyway, I had a client came in telling me a company and a SMSF could be both on the title to a property. the SMSF could borrow for their portion, or some such.

Seemed a bit strange, and at odds with the limited amount of knowlede I have about the subject.

anyone with knowledge care to ellaborate?

A person or company could buy with a SMSF trustee as tenants in common. However the property could not be used as security or mortgaged in anyway.

Possibly a better way to do this would be a unit trust with each owning units separately. This way the SMSF could acquire the units of the other party over time.

 

[TPI]

I cant see the benefit of negative gearing at 15%.

Sure, but is it really "negative gearing at 15%"?

If for a property held in a SMSF the interest (plus other costs) is greater than the rental income, and this shortfall is made up for by a concessional contribution into the fund (within the appropriate concessional contribution limits for the tax payer)... that contribution will reduce the tax payer's individual taxable income which may be at the top marginal rate, not 15% (and I believe no contributions tax would be payable in this instance as the SMSF made a loss).

So a ''negative gearing loss" inside a SMSF is not that much different to one outside a SMSF isn't it?

Unless the losses are above your annual concessional contribution limits...

In that scenario I'm particularly fond of showing clients how they can PERSONALLY invest in a property along with their SMSF without a loan so they get personal neg gearing benefits at their higher tax rate while at same time SMSF pays little to no tax on its share...Best of both worlds. The key benefits of this style of strategy allows the individuals to get some tax benefits, allows them to build some personal wealth to maybe repay their home loan and also benefits super. Longer term strategies allow the SMSF to gradually acquire more of the property (using sal sacrifice also?) and individuals reduce their ownership. And its all compliant.

That far smarter than borrowing $$ in a SMSF at high cost cause some broker / property guy suggested its a great idea.

But in this scenario presumably you have to setup a unit trust and pay your accountant extra fees for this purpose for maybe a few decades too doesn't it?

 

[roe]

SMSF is good if you have +ve cash properties flow rather negative cash flow

There is no 50% CGT concession with SMSF, it's 33% concession

Most people that have SMSF fund invest in fully franked dividend business on the share market as you get an extra 15% back at Tax time on dividend payment.

and all your short term shares profit get tax at 15% so it becomes extremely attractive to use for stock market investment vehicle..

you can see the rich guy SMSF ..guys with asset 5m or more in SMSF, they go stock market galore.

SMSF + Stock Market = Very tax friendly so you grow your super; super fast for those with the knowledge.

 

[Terry_w]

Sure, but is it really "negative gearing at 15%"?

If for a property held in a SMSF the interest (plus other costs) is greater than the rental income, and this shortfall is made up for by a concessional contribution into the fund (within the appropriate concessional contribution limits for the tax payer)... that contribution will reduce the tax payer's individual taxable income which may be at the top marginal rate, not 15% (and I believe no contributions tax would be payable in this instance as the SMSF made a loss).

So a ''negative gearing loss" inside a SMSF is not that much different to one outside a SMSF isn't it?

This is a good point to make.

Say a property outside super had a $10k loss, someone may save $4500 pa on tax if in the top rate.

Same property inside super would result in a $1500 saving to the fund on a rate of 15%.

But if the member salary sacrificed $10k (keeping contributions under the $25k limit) then they would save $4500 pa in tax still.

 

[TPI]

Same property inside super would result in a $1500 saving to the fund on a rate of 15%.

Yes good point, that's true in the case of the SMSF having other income to offset the loss on the property.

 

[Terry_w]

Yes good point, that's true in the case of the SMSF having other income to offset the loss on the property.

contributions are income.

 

[Paul@PFI]

Its considered unprofessional to comment on others fees and service standards when you dont know what they are for or the degree of service. My clients know some people charge $59 to do a tax return. But they dont use them. Doesnt make my pricing criminal. Doesnt mean the other does a worse job either I guess.

Tip for those who read the former accountant scott's earlier comment "especially if you each contribute the maximum of $25k pa to the fund". Careful - Its an outdated generalisation.

The maximum concessional (tax deductible) contribution for those aged 59 or over on 30 June 2013 is now $35,000 for the 2013-14 year. Otherwise it is $25,000.

 

[Paul@PFI]

This is a good point to make.

Say a property outside super had a $10k loss, someone may save $4500 pa on tax if in the top rate.

Same property inside super would result in a $1500 saving to the fund on a rate of 15%.

But if the member salary sacrificed $10k (keeping contributions under the $25k limit) then they would save $4500 pa in tax still.

Terry - You got it. SMSs are all about three things. Strategy, strategy and finally strategy. A single strategy isnt that effective. A stream of strategies can be highlty effective and that is wehere SMSFs can be valuable. Sal sac, co-contributions (oh well used to), franking credits and pooling funds + many other small issues can all lead to great benefits. Then there can be some (complex?) issues with death benefits etc that can also count as practical strategies.

I find that funds which are setup to buy a single (highly) leveraged IP which has no other investment tend to have neg gearing problems and only soak up contributions. They tread water and go nowhere at a high cost. Comparably doing it other ways can give some other benefits and a different strategy approach is needed.

Every case is different.

 

[coastymike]

TPI has raised the issue of accountants setting up structures just to make fees a few times now. Had a few clients who are also somersofters comment that discussing what others charge last time it was raised by TPI to be irrelevant for the very reasons you discussed Paul. Sometimes clients want 24 hr turnaround times and pay extra for it. Others want specialised services and pay for that. As I said in my other post to TPI as long as the client is informed of all the costs vs benefits then it is their decision whether a structure is appropriate or not. I personally dont recommend a structure merely for the fees. In fact as discussed before I've recommended many clients setup in their own names for different reasons.

 

[TPI]

Glad I could help strengthen that bond between you and your clients .

Nothing wrong with charging a fee, how else are you supposed to make money?!

And exactly what you charge is not really relevant either.

I'm just making the point for those who aren't your clients that sometimes with particular structures the costs may not be worth the perceived benefits.

And some structures may not be worth using even if offered for free.

 

[coastymike]

TPI

Thanks it helped a lot. Agreed as discussed in the other thread if an accountant or lawyer discusses the pros and cons of each and then based on individual circumstances makes a valued judgement then that is all that can be done. There are honest and dishonest in all professions and as long as someone is given all the facts both good and bad they can make a judgement calls. Costs to setup and ongoing costs vs the other options lets them weigh up all options.

 

[Future Assist]

It's just good to do your research. There is not min balance required for SMSF, but comes down to your age, income, contributions and retirement goals.

Definitely worth shopping around for fees, typically you'll pay more for the least amount of work you want to do, and rock bottom dollar if your wiling to chip in some of the admin/running of the fund.

It would be interesting to see a study done of the average time trustees take to manage their fund and the scale of $$ increase based on the amount of work a trustee does.

 

[SMSF_Lorde]

It would be interesting to see a study done of the average time trustees take to manage their fund and the scale of $$ increase based on the amount of work a trustee does.

Average Eight hours per month apparently... if you can beleive AMP's research.

InvestmentTrends,Selfmanagedsuperfundsinvestorreport2012:
https://www.amp.com.au/dafiles/smsf/Files/StaticFiles/is_an_smsf_right_for_me.pdf

Not sure how much AMP charge for admin, and if it is full service or not.
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