I don't think the new instalment warrant rules mean you can transfer existing IP's into super, unless they were purchased using a Unit Trust?
Super funds can now borrow to buy IP's
- Thread starter MPmelb
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I don't think the new instalment warrant rules mean you can transfer existing IP's into super, unless they were purchased using a Unit Trust?
Hi Jit,
The new Instalment Warrant rules will not allow purchase of a residential property from a related party, however, for those small businesses with geared business real property they will be able to transfer these into the SMSF. Also if their business real property has a substantial unrealised capital gain they maybe able to avail themselves of the small business and general capital gains tax concessions and roll the final amount into their SMSF thus paying no tax and I know in Victoria an application can be made to have stamp duty waivered on the transaction if the owners of the property are the same as the trustees of the SMSF.
Great stuff for those small business owners who are buying their business use property.
The new Instalment Warrant rules will not allow purchase of a residential property from a related party, however, for those small businesses with geared business real property they will be able to transfer these into the SMSF. Also if their business real property has a substantial unrealised capital gain they maybe able to avail themselves of the small business and general capital gains tax concessions and roll the final amount into their SMSF thus paying no tax and I know in Victoria an application can be made to have stamp duty waivered on the transaction if the owners of the property are the same as the trustees of the SMSF.
Great stuff for those small business owners who are buying their business use property.
Property Warrants
Im only 30 years of age and have some time until I retire. But Id rather earn 10-15% on a $300k property and pay the 5.5% upfront which I will gain back in the first six months of growth if purchased wisely than say 10-15% on $100k share portfolio that can be wiped out overnight. Especially with the recent fallout in the U.S and seeing companies like centro who would have had alot of retiree monies invested in it losing 75% of its stock price in one day!!!
Guard Thy Treasures from Loss
"Guard your treasures from loss by investing only where the principal is safe, where it may be reclaimed if you desire so, and where you will not fail to collect a fair rental."
The Richest Man In Babylon
Im only 30 years of age and have some time until I retire. But Id rather earn 10-15% on a $300k property and pay the 5.5% upfront which I will gain back in the first six months of growth if purchased wisely than say 10-15% on $100k share portfolio that can be wiped out overnight. Especially with the recent fallout in the U.S and seeing companies like centro who would have had alot of retiree monies invested in it losing 75% of its stock price in one day!!!
Guard Thy Treasures from Loss
"Guard your treasures from loss by investing only where the principal is safe, where it may be reclaimed if you desire so, and where you will not fail to collect a fair rental."
The Richest Man In Babylon
Interesting development. Any restrictions?
I wonder do you have to actually BUILD something? i.e. real incremental investment. Or can you just buy something that exists and sit on it for expected capital gain.
I wonder also if they let you accept a yield below your borrowing costs - I suppose they would. edit: I probably didn't explain this properly - guess what I mean is I wonder if they would let the IP eat into your super for holding costs.
I tend to agree Fall out boy. Many financial planners and others advocate shares producing a higher return than property. But as you say, if the shares selected do not perform, (centro for example) or even disappear, the argument doesn't hold water. I would prefer to invest in a well selected and located property that will be in demand in the future.
As is the case with any asset invested into superannuation, the main risk lies not in the property itself, but in the goverment changing the rules as time goes on.
Regards Jason.
Hi,
You can choose most existing properties that you wish either, residential or commercial, you don't have to build. The negative gearing shortfall between the rental income and the interest and other costs should be balanced each year via Super Guarantee Contributions by your employer. If there is still a shortfall you can salary sacrifice an amount directly into your fund to make up the difference. There is a big tax saving here for you.
Also, if you want to pay the Principal off the loan, you can salary sacrifice a further amount. In doing this you will accomplish what no other geared investment can do and that is pay Principal off a loan and get a substantial tax benefit for it.
You do need a 20% deposit on the property plus stamp duty and legals so you will probably need a minimum of $120,000 in your Self Managed Super Fund
Leveraging SMSF's
Hi All
In September last year the Federal parliament approved an amendment to the Superannuation Industry (Supervision) Act 1993 (the Schedule 3 to Taxation Laws Amendment Act 2007 which inserted a new subsection 67- 4A) which effectively allows Self Managed Super Funds (SMSF) to acquire property with leverage. Prior to this SMSF were not able to leverage property investments.
There is at least one lender that I know of that will be soon be in a position to fund IP (both resi & commercial) via SMSF as a consequence of the the above legislative amendemnets.
An important feature of this new SMSF funding arrangement is that it allows individuals to find their own properties. This is an important point as it differentiates from many others lenders who link up with developers often to sell stock using warrants.
The basic provsions including benefits of the new law can be found in an article by Lynch Meyer Commercial Lawyers (htttp://www.lynchmeyer.com.au/pdf/Taxation_Dec07.pdf).
When you borrow to purchase a negatively geared property investment, you get a tax deduction in respect of the interest you pay (less rental income received), but you have to repay the principal in post tax dollars.
Our new SMSF loan goes beyond negative gearing and provides “Super Leveraged Property Investment” where principal repayments are made virtually from pre tax dollars (that is, income taxed at the concessionary, 15% contribution tax rate).
To put all that another way, the cost of a $500,000 investment property, when purchased with a Seiza SMSF loan, would be less than $317,000 in post tax dollars.
The potential advantages of purchasing an investment property within an SMSF are further enhanced by the fact that, depending on the status of the SMSF at the time of disposal, the total gain should be entirely free of CGT (or, at worst, subject to an effective tax rate of 10%).
Hi All
In September last year the Federal parliament approved an amendment to the Superannuation Industry (Supervision) Act 1993 (the Schedule 3 to Taxation Laws Amendment Act 2007 which inserted a new subsection 67- 4A) which effectively allows Self Managed Super Funds (SMSF) to acquire property with leverage. Prior to this SMSF were not able to leverage property investments.
There is at least one lender that I know of that will be soon be in a position to fund IP (both resi & commercial) via SMSF as a consequence of the the above legislative amendemnets.
An important feature of this new SMSF funding arrangement is that it allows individuals to find their own properties. This is an important point as it differentiates from many others lenders who link up with developers often to sell stock using warrants.
The basic provsions including benefits of the new law can be found in an article by Lynch Meyer Commercial Lawyers (htttp://www.lynchmeyer.com.au/pdf/Taxation_Dec07.pdf).
When you borrow to purchase a negatively geared property investment, you get a tax deduction in respect of the interest you pay (less rental income received), but you have to repay the principal in post tax dollars.
Our new SMSF loan goes beyond negative gearing and provides “Super Leveraged Property Investment” where principal repayments are made virtually from pre tax dollars (that is, income taxed at the concessionary, 15% contribution tax rate).
To put all that another way, the cost of a $500,000 investment property, when purchased with a Seiza SMSF loan, would be less than $317,000 in post tax dollars.
The potential advantages of purchasing an investment property within an SMSF are further enhanced by the fact that, depending on the status of the SMSF at the time of disposal, the total gain should be entirely free of CGT (or, at worst, subject to an effective tax rate of 10%).
Thanks Mike,
Couple of questions:
Which lender is it?
What's the interest rate on the loan and initial and ongoing finance costs?
Is it interest only or principle and interest or either?
What's/Who's 'Seiza'?
Hi JIT
The ultimate lender is an offshore lender (think big bank) with Seiza the mortgage manager. Interest rates & LVR's are still being finalised (hope to have these confirmed by months end) and ongoing fees being nil.
Loan terms will be 30 years resi and 25 years for commercial with payments P & I quarterly in advance or interest only 5 yrs max.
The ultimate lender is an offshore lender (think big bank) with Seiza the mortgage manager. Interest rates & LVR's are still being finalised (hope to have these confirmed by months end) and ongoing fees being nil.
Loan terms will be 30 years resi and 25 years for commercial with payments P & I quarterly in advance or interest only 5 yrs max.
Hi Mike,
Is this loan that you are talking about a non-recourse loan?
Is this loan that you are talking about a non-recourse loan?
What is a "non-recourse" loan please?
Non-recourse means that you only lose the deposit, and other expenses, paid against that property. All other assets of the fund are protected. It protects against a bad choice of property or a downturn. However, you would normally expect to pay a higher interest rate as "insurance" to the lender. SMSFs are not allowed to put other assets at risk so this works the same way as the "Self Funding Instalment Warrants" work on share market.
regards
Paul
Many thanks Paul. Am I allowed to transfer an IP from my personal name to my SMSF? If yes, would I be up for CGT and/or Stamp Duty? Or anyother costs?
Sailor
Unfortunately, you cannot sell or transfer an investment property from yourself (or any related parties) to your SMSF. I don't know if you recall, but about 12 months or so ago, there was a push by the financial planning industry to have people sell IPs and contribute the proceeds to their SMSFs prior to the introduction of the new superannuation legislation on 1st July 2007 which limited the amount per annum that could be contributed. However, even if you sold your IP now (and paid all that nasty CGT, agents fees, etc), you would be restricted to contributing a maximum of $150,000 for this financial year to your SMSF.
There are/were separate provisions relating to the transfer of business premises to your SMSF, but I can't remember what was involved - you would need to see your accountant if you are considering doing this (if, indeed, it is still possible).
Cheers
LynnH
Unfortunately, you cannot sell or transfer an investment property from yourself (or any related parties) to your SMSF. I don't know if you recall, but about 12 months or so ago, there was a push by the financial planning industry to have people sell IPs and contribute the proceeds to their SMSFs prior to the introduction of the new superannuation legislation on 1st July 2007 which limited the amount per annum that could be contributed. However, even if you sold your IP now (and paid all that nasty CGT, agents fees, etc), you would be restricted to contributing a maximum of $150,000 for this financial year to your SMSF.
There are/were separate provisions relating to the transfer of business premises to your SMSF, but I can't remember what was involved - you would need to see your accountant if you are considering doing this (if, indeed, it is still possible).
Cheers
LynnH
Hi Sailor,
Your SMSF can only transfer or purchase "business real property" off a related party under the laws inside the Superannuation Industry Supervision ( SIS ) Act. This will be a Capital Gains Tax event which in your case will not create a tax payment as your property has gone down in value. Stamp Duty may be payable so check this with your Accountant.
Interestingly it's possible in some states to transfer business real property into the SMSF and not pay Stamp Duty or Capital Gains Tax but this depends on each person's individual circumstances.
Also, all loans offered to SMSF's via an Instalment Warrant are required to be non-recourse as per the SIS Act.
Hope this helps
Your SMSF can only transfer or purchase "business real property" off a related party under the laws inside the Superannuation Industry Supervision ( SIS ) Act. This will be a Capital Gains Tax event which in your case will not create a tax payment as your property has gone down in value. Stamp Duty may be payable so check this with your Accountant.
Interestingly it's possible in some states to transfer business real property into the SMSF and not pay Stamp Duty or Capital Gains Tax but this depends on each person's individual circumstances.
Also, all loans offered to SMSF's via an Instalment Warrant are required to be non-recourse as per the SIS Act.
Hope this helps
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