Superannuation/ IP Question

[Wannabe1]

Hi,
I have an amount of money invested in a Superannuation rollover fund.
It is understood that I can only access this money at age 65 or at age 55 if not employed full-time.
At present, I am a full-time employee.
I am told it is possible to gain early access to these funds if they are to be re-invested in an Investment Property.
Can anyone confirm if this is correct, and, if so, any further info would be much appreciated.
Many thanks,
Will

 

[geoffw]

I'm no expert.

But I guess that you could put the funds into a property.

IF:
.You set up your own Self Managed Superannuation Fund (SMSF)
.You were in a position to roll over those funds into the SMSF (many people, especially public servants, are not)
.You could but a property outright with those funds- ie, YOU CANNOT BORROW! (That's the killer- you cannot use the power of leveraging.

I have my own SMSF. I use some of that for learning about the stock market, and I'm intending on using some of that now to put into Steve Navra's fund.

 

[Savanna100]

SMSF and IP

I've actually done this. I created a SMSF for myself and my husband (You must have 2 members and 2 trustees otheriwise you will need to have a corporate trustee). Also, if you are an employeee, you cannot do it with a current superfund but this is ideal for funds from jobs you have left and just left the money in their funds (and not rolled it over to your current fund).


here's what we did with our fund (total amount in fund was $62K)

We bought a gorgeous 1870s house on 1/2 acre in a small country town in NSW about 1.5 hours from Canberra. we are currently renovating it.

I basically set up the fund over the internet. Check out the ATO site, it helped a lot.

SMSF Cost/benefits so far:

$25 to set up SMSF (yes, $25, but free in NSW. This was for registering the deed in the ACT), $45K for house, about $250 for conveyance (disbursements). (I can't remember exactly how much cos I did it myself),

$647 stamp duty (shock *gasp*).

The land is subdivideable into 2 more block (but probably better to do only one more) so we will subdivide this off, buy this off our superfund, get a house moved on it cheap as possible and probably give it to our daughter and start her off on the wonderful world of property investing. The rent will initally pay back the small loan to set it all up.

We expect about $100 per week for the 1870s house when it is fully renovated. So far we have bought a bath for $10 and a basin for $5 from the recyclers at the tip and they are in near perfect nick !. The work is proceeding slowly and we are currently stripping all the carpets, wallpaper old kitchen out of it. We estmate it will take at least a year to do.

I hate spending much money so this all suits me fine !!!

Try the SMSF path....it is really easy. It was so satifying getting those cheques back from all the useless supefunds which had only been going backwards and put them in our own super account.

Good luck with it

Savanna

 

[Steve KKK]

$25 to set up a super fund!! Where do you get the trust deed from? I know you can buy one for $320 or if you wish to have a corporate trustee the lot will cost around $1280.

Can anyone recommend someone in the ACT who can help with this process? I know of a few in Sydney, but I would prefer a local.

Steve KKK

 

[Bmok]

Will (Wannabe1)

To set up a SMSF in Qld, contact Australian Company Incorporation Services (ACIS) in Brisbane (Ph 1800 770 477).

ACIS charged $374.00 (including GST) 2 years ago to set up SMSF. Simple to do. It was all organized in less than an hour and they posted all the paperwork up to me. Give them a call and they will be able to explain everything to you. Talk to your accountant as well for his advice.

Cheers,
Bmok

 

[Wannabe1]

Hi,
Many thanks for the quick replies, and the good advice.
If I am able to transfer my 'super' to a SMSF, it may enable me to get my first IP...without it, I may not be able to proceed.
I've bookmarked some sites ( eg ATO ), and will delve into it further.
Once again, thank you.
Will

 

[Will1]

Just a couple of missed points here:

The commonwealth government varied preservation ages about 3 years ago so there is now a sliding scale of ages. (The plan is to lift the 55 minimum to 60) So ....if you were born before 1960, no change, otherwise a sliding scale and people born after 1964 it's 60 years old.

The purpose of the fund must be to provide retirement benefits. The investments are to achieve this. IPs are fine, but no ski lodges for the sake of free skiing etc


I have my own SMSF (and happy about it) but..... it involves paperwork, records, an annual audit and significant liability for the trustees. If you fail to comply you can have all your super taxed at top marginal rates plus face penalties. This happens!

As the ATO regulate small self managed funds, a first point of call is.


http://www.ato.gov.au/Level2_SP.asp?placement=AS/SP/SM

 

[Special K]

I'm in the process of seting up my own SMSF.
Can anyone recommend a particular bank and/or account type to use with the Funds? An account that is easy to set up and easy to use for investment transactions.

I plan on buying some shares (amongst other asset classes)with my fund and will probably use Commsec for these transactions. On this basis a CBA Account may be the best option, unless someone can give me some bad feedback about CBA.

Thanks in Advance

 

[Will1]

I know this is a real property forum....but anyway since you asked ....

If you were to use Commsec as a broker and you wanted to trade internet only on ordinary ASX equities, you would be hard pressed to go past their deal of bank with us in our CDIA account and get really cheap brokerage.

Now how brokerage compares with bank fees and interest rates depends on how big your account balances are and how often and how big you trade.


So....If you trade small this is a good approach to a bank account. Set it up through commsec not a branch to get the deal. If you want an account to park large amounts of cash you can still elsewhere there are a myriad of products offering rates etc from lots of institutions.


As usual, with a super or trust account, these commbank folks will want to see trust deeds etc. But you get used to that operating a SMSF.

Will1

 

[Wannabe1]

Hi,
Can I put a scenario to all you learned people, and ask for your advice?
It appears that with my small, single income, and normal weekly committments, I may not be able to service a decent loan.
Now, I have a small rollover super fund worth about $130000. (Separate from my current work Super). At this time, and for the past two years, it is going nowhere....
If I convert this to an SMSF, I could possibly buy outright a small one-bedroom flat/unit with this money, and have a rental income of approx $140-$160.00 weekly.
I could then use this income to service a 'bigger and better' loan.
I have equity in my PPOR of about $310000, and no other debts.
Does this make sense, or am I over-simplifying the procedure? Are there any hidden taxes/fees to be aware of?
Thanks in advance,
Will

 

[Andrew]

Wannabe, I think you may have it a little wrong, if your super fund
were to buy the property then I would think that the profits would
have to remain in the fund.

You may want to talk to a decent accountant about structuring this,
perhaps there is a way to jointly own with your super fund. Maybe
some kind of trust structure.

I'm no expert but I'm pretty certain that if your fund bought it
outright then the rents would have to remain in the fund.

andy

 

[Wannabe1]

Andy,
Yeh, thanks for the info.....I didn't think of that..
Looks like back to the drawing-board !!
Will

 

[geoffw]

Wannabe,

Andrew is right.

SMSF cannot borrow, it cannot lend- I guess it cannot have anything to do with your own affairs.

If SMSF bought a small unit, that would be OK- as long as it was OK, and as long as it fell within the SMSF's stated investment strategy (I think).

You couldn't use SMSF income to help your own servicability.

But, in the last couple of years, you would have outperformed just about any of the funds investing in shares.

past results are not an indication of future results

 

[Savanna100]

SMSF

Andrew and Geoffw are correct......
you cannot borrow against your superfund and you cannot apply any returns to yourself. A SMSF is something which you need to think of as totally independant from you, it cannot do anything for you until you are of an eligible age to collect on it.

If you buy something, it must be for cash (ie no borrowings) and all returns go straight back into the fund. You can then use this to buy other investments like shares etc.


Savanna

 

[mort the frog]

I wonder if the government should allow you to nominate your superannuation to be paid toward an IP rather than have it wittled away in fees by a super fund that is going backwards at 5%.

Maybe this could be an innititive of a new government along with major reforms to the tax system. I'd personally love to have an extra $70 a week payed into a IP. That would give me more wealth and income than a directionless superfund, if your fund manager doesn't perform you can be out of pocket tens of thousands of dollars according to Paul Clitheroe. Not all fund will give you the same return even if you contribute the exacte same a mount over an identical period of time. Yet it is compulsory.

 

[kierank]

Re: SMSF

Originally posted by Savanna100

If you buy something, it must be for cash (ie no borrowings) and all returns go straight back into the fund. You can then use this to buy other investments like shares etc.


Savanna

This is true but you and your smsf can buy an IP as "tenants in common", say you buy 60% and smsf buys 40%, then you will receive 60% of the returns and smsf 40% of the returns. Your 60% can be borrowed (even negatively geared) but the IP you are buying as "tenants in common" can NOT be offered as security, either now or anytime in the future (until the smsf ceases to own its share) - this is the real downside to this arrangement.

KieranK

 

[Special K]

Couldn't you also set up a trust with both yourself and your SMSF buying units in the trust. Then use the trust to buy an IP. The SMSF could buy more units in the trust and you sell those units, therefore freeing up more cash for yourself and perhaps eventually having your SMSF owning all of the trust and hence the IP.

 

[NickM]

Originally posted by Special K
Couldn't you also set up a trust with both yourself and your SMSF buying units in the trust. Then use the trust to buy an IP. The SMSF could buy more units in the trust and you sell those units, therefore freeing up more cash for yourself and perhaps eventually having your SMSF owning all of the trust and hence the IP.

This strategy could work however with some variations and certain considerations.

Eg Rules for residential property are different as opposed to commercial / business real property

In house asset rules apply to residential property in this situation
Issue and redemption of units in NSW not subject to duty. Better than selling to a SMSF - cant do it if residential property

STrategy is optimised if a hybrid or discretionary trust is used instead of an individual investor.

Property cannot be used as security

NickM