Smsf

[tj22]

if you own a positive cashflow IP in your own name can your rent income go straight into your smsf? so it gets taxed at 15c and could then possibly make the smsf neutral if you had a negative geared strategy in the smsf or just go into your smsf so you could get more money in there and save up a deposit for a next IP in the smsf faster?

idea being that as a individual you have a high income with cash flow properties and you offset the rent income into the SMSF and the SMSF also buys capital growth properties possibly.

I don't have a great deal of knowledge when it comes to SMSF's

 

[Peter_Tersteeg]

Rental income is just like the income from your job. If you have surplus cash you can make voluntary contributions to your super fund, be it SMSF or any other super fund.

 

[tj22]

thats what i was thinking...

so it would only be taxed at the 15c not the individual income right?

and would there be any problems / cons doing it this way then just the normal way as a individual?

thoughts anyone?

 

[AYK]

Hi Tj22

Just some very quick general comments.

Net rental income, say $30,000, of IP under your name needs to be declared in your own tax return and it will be taxed at your marginal tax rate (MTR) plus 2% Medicare levy; and surcharge if relevant. Assuming your MTR is 37% with 2% Medicare levy, your after-tax net rental income is $18,300 ($30,000-$30,000x39%).

Subject to your annual cap, you can make a non-concessional contribution of $18,300 to your SMSF. The amount does not get taxed on the way in to the SMSF and the income generated from it within your SMSF is taxed at 15%.

If you want to have properties in your SMSF, please talk to a tax accountant specialising in SMSF (and also good at it, too). The strategies have good and bad points.

Regards
AYK

 

[Perp]

so it would only be taxed at the 15c not the individual income right?

Only if the property is owned by the SMSF can you by-pass your personal ITR. If the property's in your name, then all income and expenses of the property go on your personal ITR.

You can then choose to make contributions to super from your personal cash if you want, but no, you can't by-pass your personal ITR and simply attribute the rental income to the SMSF if you own the property personally.

 

[alexlee]

I don't have a great deal of knowledge when it comes to SMSF's

Have you considered whether a SMSF is a good vehicle for you at all? How old are you? While super funds have tax benefits, gearing is limited, refinancing is very difficult and the back end tax benefits are only available after a certain age.

 

[Terry_w]

Hi Tj22

Just some very quick general comments.

Net rental income, say $30,000, of IP under your name needs to be declared in your own tax return and it will be taxed at your marginal tax rate (MTR) plus 2% Medicare levy; and surcharge if relevant. Assuming your MTR is 37% with 2% Medicare levy, your after-tax net rental income is $18,300 ($30,000-$30,000x39%).

Subject to your annual cap, you can make a non-concessional contribution of $18,300 to your SMSF. The amount does not get taxed on the way in to the SMSF and the income generated from it within your SMSF is taxed at 15%.

If you want to have properties in your SMSF, please talk to a tax accountant specialising in SMSF (and also good at it, too). The strategies have good and bad points.

Regards
AYK

A non-concessional contribution is an after tax contribution. this means it won't reduce your annual income. so no tax savings going it. Money earned in the fund will be taxed at 15%

A concessional constribution is a pre-tax contribution. In 2014-15 you can contribute up to $30,000 per year including the employer contribution. This is taxed at 15% goinng in. So if you are on 37% tax rate and salary sacrifice $10,000 you will save $3700 (plus medicare) but the fund will be taxed $1500 - net saving is $2200. earnings in the fund will be taxed at 15% where as outside you would be paying 37%.

So you have $8,500 working for you earning money and being taxed at 15%

verse

$6300 working for you earning t he same money and beinng taxed at 37%.

 

[tj22]

so terry i am right in thinking that i could by pass my individual tax for SMSF 15c tax?

of up to 30k per year and because the 30k goes to SMSF. it will actually make me being a individual save more on tax because the property could then be negatively geared? (for etc)

it would go from cash flow to negatively geared for individual tax purposes, is this correct?

 

[Redwood]

if you own a positive cashflow IP in your own name can your rent income go straight into your smsf? so it gets taxed at 15c and could then possibly make the smsf neutral if you had a negative geared strategy in the smsf or just go into your smsf so you could get more money in there and save up a deposit for a next IP in the smsf faster?

idea being that as a individual you have a high income with cash flow properties and you offset the rent income into the SMSF and the SMSF also buys capital growth properties possibly.

I don't have a great deal of knowledge when it comes to SMSF's

Hi TJ
When it comes to SMSF - it is about Strategy and there is no difference in your case. SMSF are not for everyone but for the educated investor with the right advice can be a fantatic vehicle to secure retirement and reduce tax. Coming up to 30 June - you will find a heap of people using the concessional contribution cap which is at least $25k for 2013 and $30k at least next year, this is a pre-tax contribution and has tax benefits.

Think of property in an SMSF as a 'side' portfolio, lower tax than individually and potentially zero tax on capital gains in retirement. You can borrow to invest and with the right property the rental income should cover the loan repayment and add the contribution of members. Again, important to seek advice.

Hope that helps
Cheers, Ivan

 

[Terry_w]

so terry i am right in thinking that i could by pass my individual tax for SMSF 15c tax?

of up to 30k per year and because the 30k goes to SMSF. it will actually make me being a individual save more on tax because the property could then be negatively geared? (for etc)

it would go from cash flow to negatively geared for individual tax purposes, is this correct?

Sort of, inddirectly. contribute to super as a concessional contribution and this will reduce your tax.

see a SMSF planner like Ivan as if you set it up by yourself you could make mistakes.

 

[Rolf Latham]

SMSF...............

Speaking with an old friend tonight

Local Financial Planners recommended taking all super from industry fund, tipping into SMSF and buying a place in Warwick QLD

A great example of how the "Best interest" legislation is being circumvented for max planner profits

ta
rolf

 

[Redwood]

SMSF...............

Speaking with an old friend tonight

Local Financial Planners recommended taking all super from industry fund, tipping into SMSF and buying a place in Warwick QLD

A great example of how the "Best interest" legislation is being circumvented for max planner profits

ta
rolf

Best interest is topical - refer Cwth Financial Planning - Its a huge issue at the moment - particularly QLD property.

For example, there is a local planner here in Melb paying for flights up to sunny QLD with a free lunch - promoted openly. In one day 33 people went (some were couples) and all but one couple purchased 'off the plan'. The planner has an AFSL so its allowed and earn a handy commission.

There is a clear conflict of interest when the planner is recommending property to a SMSF client and at the same time recommending a wrap for instance and taking a commission on both. See that all the time.

Further, we are also seeing an increase in brokers out there smelling the $$$ in the SMSF Property market - 'recommending' SMSF set up and property investment. Bit of a watch this space, however, the regulators seem to focus on 'FREE SMSF set up' instead of poor mum and dads getting conned into dud off the plan properties, that don't value up at settlement (of course the SMSF member will need to fund the difference from their super).

Cheers, Ivan

 

[Terry_w]

This is terrible. The client gets hit with a double whammy in paying over price for property which then often doesn't grow in value.

Commissions on these sorts of sales for the broker or planner are around 4%.

 

[Paul@PFI]

Can you redirect rents to a SMSF ? No. Not really but Yes you can...It depends.

Lets start with the taxpayer. Mr & Mrs Average who own the IP. If they have employer SGC contributions its highly likely they CANNOT satisfy the 10% rule and make deductible personal super contributions. The 10% rule has the intent of denying deductions for persons who already have emmployer super. However some taxpayers can meet the 10% test and in that case the may be capable of making personal tax deductible contributions. But it comes with a catch !! The deductible contribution should NEVER:
1. Create a tax loss
2. Bring taxable income lower than approx $20,000; and
3. Be made without advice that confirms entitlement to the 10% rule.

So, lets assume that Mrs Average can make a deductible contribution...The question is "should she?"
1. What is her marginal tax rate. If its 19% the amount would be taxed to the fund as 15%. 4% isnt much of a tax benefit. At the highest tax rate its a significant saving - 46.5% v's 15%
2. The contribution will be preserved....Until at least age 58, perhaps age 60 or even older once law changes occur.

Mrs avergage might also be able to make a non-deductible contribution. That wont give any tax benefit ie : no deduction but also not taxed into the fund, but will enhance the low rate savings for retirement. Sometimes this fits a long term super building strategy. Personal needs should be considered. Preservation might be the problem. Once contributed the funds cant be withdrawn until a condition of release occurs.

The contribution tax strategy and the inteaction with the 10% rule tends to be used for taxpayers with large taxable capital gains rather than + IP rent. Each individual is different. This is an example of a complex startegy that really should be unertaken with professionalo guideance. A LOT can go wrong incl excess contributions tax etc. Member age and working situation also needs to be considered if they are aged OVER 64.

Can rental profits be redirected toa SMSF ?? no. Only a member can and should make such contrubutions. If the rent came from a trusta s erious contravention could result.

Its worth seeking guidance to such advanced strategies to avoid simple errors that can be considered non-compliant.

 

[Perp]

A great example of how the "Best interest" legislation is being circumvented for max planner profits

Sorry, I'm not au fait with the rules. How does this circumvent the "best interest" rules? Are investments made by an SMSF not subject to those rules?

 

[Redwood]

This is terrible. The client gets hit with a double whammy in paying over price for property which then often doesn't grow in value.

Commissions on these sorts of sales for the broker or planner are around 4%.

Terry (and Perp re your question), unfortunately I see this everyday, unfortunately i'm emotional and get involved to protect best interests where clients have received poor advice from unlicensed professional.

Brokers (generally) should not be recommending property in a SMSF as this is a financial product and if they do they will need an AFSL or be an auth representative of a AFSL Holder. The broker will have a credit license not an AFSL in most cases. There are a heap out there circumventing rules with the 'one stop' shop model, which to me is a filthy word. Brokers in this type of example will be earning a commission on finance plus the property.

Re comm's, 4% is the minimum, large marketers are earning up to 10% on H&L packages in Melbourne in an SMSF and many apartments off the plan currently in the market are offering 7%.

How do I know? as they target us everyday. To me there is an inverse relationship between property value and comms. If you have a high commission, this is factored into the purchase price particularly with Off then plan where 'stamp duty savings are offered'. For me this is rubbish, your paying for something that will be complete in 2 years time, there is a lot of risk there. Rather just buy completed stock and pay the max $20-25k stamp duty then the property will be discounted as the developer wants to get rid of the stock.

For anyone buying in an SMSF, please pay the $300 or so to get an upfront valuation and sign subject to finance. So many clients come to us to late, where they have either settled the deal and paid the valuation shortfall or had a poor bare trust drafted or incorrect contract of sale.

Cheers, Ivan

 

[Rolf Latham]

For anyone buying in an SMSF, please pay the $300 or so to get an upfront valuation and sign subject to finance.

My recommendation is to do this for most purchases....................... SMSF or not.

Has a number of benefits.

We tend to go to val even where the lender has a no val policy


ta
rolf

 

[Rolf Latham]

For anyone buying in an SMSF, please pay the $300 or so to get an upfront valuation and sign subject to finance.

My recommendation is to do this for most purchases....................... SMSF or not.

Has a number of benefits.

We tend to go to val even where the lender has a no val policy


ta
rolf

 

[Redwood]

My recommendation is to do this for most purchases....................... SMSF or not.

Has a number of benefits.

We tend to go to val even where the lender has a no val policy


ta
rolf

Thanks Rolf and I agree its a must to obtain a valuation at purchase date- particularly SMSF where if the independent valuer says a property is worth $300k and you bought it for $350k then you need to cover that shortfall from your super balance (yes!) and many of these investors don't have the cash in the fund to cover that amount at settlement.

However, these promoters or spruikers are targeting mum's and dad's who sign a contract on the spot, unconditional. Don't worry even if the property does not value up, these crooks pocket the commission.

Cheers Ivan

 

[Rolf Latham]

Sorry, I'm not au fait with the rules. How does this circumvent the "best interest" rules? Are investments made by an SMSF not subject to those rules?

Within reason, a trustee for an SMSF can seem to do what they like with asset selection, so long as the other member arent going to chase them .

BID is more more about the planners advice being in the best interest of the client- always, intensely documented and

The challenge that I am seeing quite clearly, is that the compliance costs of providing even mediocre financial planning advice is getting beynd the reach of those that really need it most...................

ta
rolf