Super funds can now borrow to buy IP's

[MikeF]

SMSF's can now borrow to buy IP's

Well it's started....finally.

Seiza Capital have now advised there are ready to write loans under the new SMSF legislation. Available only through select brokers, rates start at about 9.25% (rates may vary between brokers) for resi property at 75% LVR and there are no ongoing fees.

Both Full doc, Lo-doc is available on residential & commercial properties but only in major city postcodes.

Approval Fees start at approx 1.5% of the loan amount together with valuation/legal/title insurance/settlement costs.

All seems fairly simple althought they do require SMSF member personal guarantees to establish serviceability/repayment ability.

It's highly recommend that you speak to your broker/accountant/financial adviser first before jumping in to ensure that this structure is right for you.

 

[traveller]

Hi,

Dont want to be seen as a pessimist here but i really dont see this policy lasting very long. It just seems to be too good to be true. Salalry sacrificing to pay off the principal and also getting CGT at discounted rates of Super.

Just imagine if property values starts going up due to this then what all the media will start saying about it. Already negative gearing seems to be getting blamed for all the unaffordability issues with housing and buying property thru super goes a step or two further then this.

My 2 cents...

 

[zita]

can I borrow on my superfund property to buy more property

I own a million dollar property - which is a commercial rental - I now need funds
urgently to finance a temporary property I may need the money for only 6 months - so can I borrow on my super fund property and pay the money back I should make $50,000 clear which I will put into the fund.

can a bank loan me money on a property which is in a superfund?

thanks
chiara

 

[MikeF]

SMSF Borrowing

Chiara

The SIS Act amendments of late last year regretfully do not allow SMSF's to mortgage assets they already own.

Part of the reason for this is that the legislation (Section 67 (4A)) states that the borrowing must be of a limited-recourse nature and that any recourse that the lender has under the arrangement against the trustee "must be limited to rights relating to the asset acquired".

Also the ATO recently made public a number of it's concerns relating to the changes via tax alert TA 2008/5 which clearly spelt out that " Trustees are also remined tha existing fund assets cannot be placed into a limited recourse borrowing without breaching the SIS regulatory requirements".

 

[888Katone]

Expert advice on SMSF please - easy questions : )

I'd love some advice on the following...

My husband and I have a combined super of $250K in traditional non-SMSF accounts. My husband gets 20% return a year on his super. We will retire in 15-20 years respectively.

We have one IP (a unit) which is mortgaged at $247K. It is currently worth $350K.

Firstly, we are wondering if we placed our unit with a remaining mortgage of $240,000 into the SMSF and we brought our $250K superfunds into it - can we have it fully paid off this way ?

Secondly, if we have a fully paid off IP in the SMSF - can we use the rental income it receives ($320 per week) ourselves, or does it just go straight into the SMSF. If we are putting our own percentage of our incomes into the SMSF as well - does the government reward us for putting in the extra rental income in ?

Thirdly - is it confirmed that we cannot borrow against the fully paid off unit in the SMSF ?

Fourthly - we can only keep the unit if we do something like this as we are also paying off a mortgage on our PPOR - budget is very tight. Is it worth putting the unit into a SMSF - or just selling it - considering my husband is getting a 20% return on his superfund every year unless he loses his job ?

 

[josko]

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

Hello Pat,

I have my Super set up as a JV (Joint Venture) with my Unit trust. Unfortunately, my accountant seems to have given me the wrong advice when I set it up and advised me that I could also use my Super Contributions to offset any NG that my IP incurred.

After completing my 07 TR, my new accountant (same firm, but fourth accountant in 18 mths!) now advises me I owe literally thousands of dollars back to my Superannuation Fund to pay back funds I had used to complete the short fall in Interest payments.

Needless to say I am absolutely furious.

It seems if I had have known that my Super Contributions could not aid me in meeting any shortfalls of NG, there is no way I would have done the JV. I explicitly remember double checking with my original accountant as I was highly NG at the time.

Are you sure warrents allow the SGC to offset the NG and does anyone have any conflicting advice to the advice my accountant has now given me?

Regards Jo

 

[stumunro]

Hello Pat,

I have my Super set up as a JV (Joint Venture) with my Unit trust. Unfortunately, my accountant seems to have given me the wrong advice when I set it up and advised me that I could also use my Super Contributions to offset any NG that my IP incurred.

After completing my 07 TR, my new accountant (same firm, but fourth accountant in 18 mths!) now advises me I owe literally thousands of dollars back to my Superannuation Fund to pay back funds I had used to complete the short fall in Interest payments.

Needless to say I am absolutely furious.

It seems if I had have known that my Super Contributions could not aid me in meeting any shortfalls of NG, there is no way I would have done the JV. I explicitly remember double checking with my original accountant as I was highly NG at the time.

Are you sure warrents allow the SGC to offset the NG and does anyone have any conflicting advice to the advice my accountant has now given me?

Regards Jo

As akward as it sounds, if you received the wrong advice surely there's some sort of avenue you can take to sueing for losses? That's why these 'professionals' have indemnity insurance. I know it's a pretty average attitude, but so is being broke because of bad advice.

 

[MikeF]

SMSF Related Party Transactions

I'd love some advice on the following...

My husband and I have a combined super of $250K in traditional non-SMSF accounts. My husband gets 20% return a year on his super. We will retire in 15-20 years respectively.

We have one IP (a unit) which is mortgaged at $247K. It is currently worth $350K.

Firstly, we are wondering if we placed our unit with a remaining mortgage of $240,000 into the SMSF and we brought our $250K superfunds into it - can we have it fully paid off this way ?

Secondly, if we have a fully paid off IP in the SMSF - can we use the rental income it receives ($320 per week) ourselves, or does it just go straight into the SMSF. If we are putting our own percentage of our incomes into the SMSF as well - does the government reward us for putting in the extra rental income in ?

Thirdly - is it confirmed that we cannot borrow against the fully paid off unit in the SMSF ?

Fourthly - we can only keep the unit if we do something like this as we are also paying off a mortgage on our PPOR - budget is very tight. Is it worth putting the unit into a SMSF - or just selling it - considering my husband is getting a 20% return on his superfund every year unless he loses his job ?

Hi 888

In response to the 4 points raised I think you'll find that;

1/ You are unable to purchase/transfer residential property that you already into an SMSF.
2/ Rental income earnt by the SMSF remains the property of the fund and as such can't be physically accessed by it's member/s at least until the members are in receipt of a pension as defined by the SIS Act.
3/ Borrowing against exisiting assets of a fund is also prohibited under the act.
4/ Think you should see a good financial advisor.

 

[josko]

As akward as it sounds, if you received the wrong advice surely there's some sort of avenue you can take to sueing for losses? That's why these 'professionals' have indemnity insurance. I know it's a pretty average attitude, but so is being broke because of bad advice.

Stu,

I had thought of suing, but because of my $7000 Accountants bill, have asked for a discount. Now that I am actually writing this, I think I am being too soft!

I do think it will be his word against mine, he has a hell of alot more money than I, and taking that course will probably end up giving me grey hairs and alot of sleepless nights.

Agh!

Regards Jo

 

[Pat]

Hello Pat,

I have my Super set up as a JV (Joint Venture) with my Unit trust. Unfortunately, my accountant seems to have given me the wrong advice when I set it up and advised me that I could also use my Super Contributions to offset any NG that my IP incurred.

After completing my 07 TR, my new accountant (same firm, but fourth accountant in 18 mths!) now advises me I owe literally thousands of dollars back to my Superannuation Fund to pay back funds I had used to complete the short fall in Interest payments.

Needless to say I am absolutely furious.

It seems if I had have known that my Super Contributions could not aid me in meeting any shortfalls of NG, there is no way I would have done the JV. I explicitly remember double checking with my original accountant as I was highly NG at the time.

Are you sure warrents allow the SGC to offset the NG and does anyone have any conflicting advice to the advice my accountant has now given me?

Regards Jo

Hi Jo,

This is an unfortunate situation. With Property Warrants you can offset Super Contributions against the negative gearing of the property. This is one reason why this new law is excellent for those who apply it.