SMSF - Purchase Of Investment Property

[SMSFLending.com]

Are you telling me that if an SMSF holds a property and there is an action against the SMSF as a result of it owning the property then the rest of the SMSF assets are safe. I would like to see that in writing. The SMSF assets are safe if the beneficiaries are being sued but I cannot see how the SMSF assets are safe if the SMSF is sued.

.... all other SMSF assets are protected - New section*67(4A) provides that a fund can borrow money if:

'the rights of the lender against the fund for default are limited to the security'

Therefore the lender can only take possession of the asset in the SMSF they lend on, most mainstream lenders will have you sign a personal guarantee, if the property is sold and there is a shortfall, the personal guarantee will be enforced.

This obviously leaves the personal assets of the member at risk, no different to a company borrower with directors guarantee - ultimately an individual MUST be responsible for payment.

Cheers.

 

[allblack]

IMHO super fund lending is still an untested and aggressive strategy for tax planning. The ATO could still attack them like they have with some trusts. Personally I am waiting a while to see how things play out before jumping in.

 

[josko]

IMHO super fund lending is still an untested and aggressive strategy for tax planning. The ATO could still attack them like they have with some trusts. Personally I am waiting a while to see how things play out before jumping in.

Personally, I think this highly unlikely considering that Superannuation Funds have always been an investment vehicle. I personally consider it a great strategy to choose the type of investment I prefer as I would think, most people do.

I can't see how an SMSF has more of a tax advantage in comparison to a HDT?

The share market has proven too recently, how volatile Super Funds actually are. It has also proven how little control people actually take in their own investment strategy. Not to mention the fact that most people don't understand how their Superannuation is even being used.

I think it more likely that a change to Self-Management within a SMSF might happen. For example, if the ATO audits too many SMSF's that have been badly managed to a point of negligence.

I personally only know 3 people who have a SMSF. All three have badly mismanaged them.

Regards JO

 

[allblack]

Personally, I think this highly unlikely considering that Superannuation Funds have always been an investment vehicle. I personally consider it a great strategy to choose the type of investment I prefer as I would think, most people do.
Regards JO

Yes super funds have always been an investment vehicle however borrowing to buy assets in a super fund is relatively new and that's where I see the risk from an ATO perspective. Time will tell.

I do agree that a lot of SMSF are not correctly managed and are in fact non complying which could come back to haunt people and result in a huge tax bill.

 

[NedKelly]

.... all other SMSF assets are protected - New section*67(4A) provides that a fund can borrow money if:

'the rights of the lender against the fund for default are limited to the security'

Therefore the lender can only take possession of the asset in the SMSF they lend on, most mainstream lenders will have you sign a personal guarantee, if the property is sold and there is a shortfall, the personal guarantee will be enforced.

This obviously leaves the personal assets of the member at risk, no different to a company borrower with directors guarantee - ultimately an individual MUST be responsible for payment.

Cheers.

I was thinking more along the lines of where the superfund is sued, e.g. a tenant falls of a balcony because it is rotten.

 

[buzzlightyear]

.

However, Unfortunately this gov, reduced the amount we can salary sacrifice into super so you can only put in $50k before July and $25K next year.
With this in mind if you don't put in $50K before July, it will take you 3 more years to reach $100K in your super and by that time you would have lost the opportunity cost of buying an IP at a discount.

Have looked at the ATO, budget website and a general google search but cannot see whether non-concessional contributions are affected at all. Can anyone confirm?

 

[bene313]

That's right, there has been no change to non-concessional contributions.

 

[Jack321]

Please excuse the tone of this reply - frustrated at the time of writing it.

The changes to non-concessional contributions are pending as a result of the recent Federal Budget. See http://www.ato.gov.au/super/content.asp?doc=/content/60489.htm&page=4&H4

In addition, some of the comments I have read here regarding the recourse of the loans and tax benefits etc are too generalised, and some, simply wrong. I have spent a lot of time in this area, and received a lot of advice, which is certainly necessary for any one/SMSF looking at instalment warrant arragenements and taking advantage of 67(4a)of the SIS Act.

What the risks are for the SMSF and its members will very much depend on the SIS Act legislation, other tax legislation, the SMSF Trust, and how the Warrant Trust and relevant loan/security documents operate. There are other risks that have not even received any where near the required attention - such as section 295-550 of the Income Tax Assessment Act.

That said, nobody here has really dealt with the benefits of instalment warrant arragements succintly. Can a specialist compile a list?

I would urge most of you to be less "as a matter of fact" in relation to this topic.

Nonetheless, I don't want to put anyone off - there are numerous tangible and non-tangible benefits for members of regulated SMSF's who take advantage of instalment warrant arrangements. Of course, no investment is without its risks. For this reason, YOU MUST ensure you are talking to lawyers and accountants who are really across this topic. I've got names of some lawyers and accountants I would recommend - PM me if you are interested.

Also, please note that many brokers are now offering "SMSF products", with little more than the basic understanding required. I am not a broker, and I don't mean to displace them, however, this is a lucrative industry and many people have jumped on the bandwagon without getting and understanding all the information (or as best as could be hoped in an area still as infant as this one). Be careful. Speak to professionals.

 

[SMSFLending.com]

I was thinking more along the lines of where the superfund is sued, e.g. a tenant falls of a balcony because it is rotten.

.... your forgetting the 'property owner' is the trustee for the property/custodian trust, the SMSF is the beneficial owner - come pension mode/transfer of asset from property trustee to SMSF, the solution is simple ... take out landlord insurance to cover such event, no different to motor vehicle insurance, just make sure your covered.

 

[coastymike]

Jack

Excellent Post. For over year I have been raising the issue of non-arms length income (s295-550) and the issues with having personal guarantees by the members of the SMSF. Do a search on my previous posts and I think i've raised it over 4 times.

My comments seemed to have been largely dismissed as scaremongering or a whingey, whiney accountant looking to create problems. Not at all. I just don't like it when products are rolled out without people thinking through the issues.

They then come along to firms like ours trying to find solutions to their problems when everything has gone pearshaped. Sometimes this isn't possible. Worse is people who take advice from a forum without seeking any professional advice specific to their situation. Then they get an audit and appear on your doorstep asking why the ATO is being soo harsh with them.

Anyway thanks for your input. Wonderful to have someone else supporting s295-550. Chris Batten of MGS has raised this issue as well and Ernst & Young has provided an opinon which also indicates that s295-550 is an issue. But hey what would they know.

 

[grossreal]

hi all
not sure of the post but it ws two days ago I think with regards to smsf and what they can invest in
this market for me is hotting up and when markets hot up products come out from every where.
now why is it hotting up
simple its one of the only markets that has available cash in it that can come out very quickly.
thats a simple fact
for me I am dealing with a few accountants that are I think going to white lable a product buts its only for accountants and I am involved because they want then to buy product.
it is a very interesting market.