using super to buy a house

[Property Hoarde]

You can put up to 500k in their annually so it's a very good vehicle for setting yourself up for a comfortable retirement.

Cheers.

Just to be clear it is not 500k annually (assuming no small business retirement)

$50,000 Employer contribution (if over 50, $25,000 if under 50)
$150,000 personal contributions (you can bring the next two years caps forward, if under 65 but locks you out for those years)
$200,000 in total each year.

 

[Qlds007]

You do not require anything like $200K to start your own SMSF.

We have set up dozens of funds for clients with circa $75K rolled over.

You can borrow upto 80% lvr with a Corporate Trustee so with $50K if you take out the Stamp Duty you are buying for around $200K.

Each property requires a new Security Custodian Trust so the costs can add up but if you Investment strategy allows it is certainly an excellent strategy.

When considering serviceability for a SMSF deal lenders take the Employer contribution, rent and the growth of the funds into the equasion.

Whilst you cannot purchase a residential property from a related party member or indeed rent a property of your own SMSF there are lots of pluses.

When a SMSF sells a property during Accumalation phase it pays CGT at 10% if the asset had been held for than 365 days. If sold during Pension phase then there is no CGT payable.

 

[Ian (WA)]

Afternoon All,

To take this thread off on a just wee tangent; am going through Marriage Separation matters and we have two IPs in a very heavily cash flow positive HDT; properties owned by company 'X' Pty Ltd ATF 'Y' Family Trust.

The proposed Asset Split will see several privately owned IPs, the HDT IPs and a PPOR change hands; messy but forthcoming nonetheless.

My question is what should I do with the company owned IPs? I would love to shunt them into a SMSF but as I am sole director of the Pty Ltd company I believe there would be no arms length transaction possible. They are not commercial or businesss real property either, purely residential IPs.

My accountant is working on all this presently and she is initially suggesting winding up the company and transferring the IPs out of company entity and over to my sole name under Relationship Breakdown provisions and under Court stamped Consent Orders.

I'm essentially looking for educated, experienced, alternative opinion to help me balance my thinking. I am open to all suggestions as I have a significant mental block at the moment and struggling with a lack of lucidity.

If it proves my accountants' initial view (and it is early days) is not unreasonable, then I will head in that direction.

I must add that my PAYG income tax position is top bracket, other IPs are positive with exception of my three townhouse development which I get keys for next month (townhouse development is owned by Family Trust) it will be slightly negatively geared but not by much.

At the moment I see moving the Karratha based 'cash cows' out of the company and into my name not making a lot of fiscal sense.

Thanks for your consideration.

Ian.

 

[THEGREAT888]

super

Oh, well bye bye to that idea then. It will continue to be a terrible investment fund that I'll completely forget about until one day after 67 I'll use it as pocket money.

i heard that if you decided to retire when you turn 60 then you do not have to wait til you turn 67 to draw income stream or withdraw lump sum super and it is tax free

t

 

[Terryw]

Afternoon All,

To take this thread off on a just wee tangent; am going through Marriage Separation matters and we have two IPs in a very heavily cash flow positive HDT; properties owned by company 'X' Pty Ltd ATF 'Y' Family Trust.

The proposed Asset Split will see several privately owned IPs, the HDT IPs and a PPOR change hands; messy but forthcoming nonetheless.

My question is what should I do with the company owned IPs? I would love to shunt them into a SMSF but as I am sole director of the Pty Ltd company I believe there would be no arms length transaction possible. They are not commercial or businesss real property either, purely residential IPs.

My accountant is working on all this presently and she is initially suggesting winding up the company and transferring the IPs out of company entity and over to my sole name under Relationship Breakdown provisions and under Court stamped Consent Orders.

I'm essentially looking for educated, experienced, alternative opinion to help me balance my thinking. I am open to all suggestions as I have a significant mental block at the moment and struggling with a lack of lucidity.

If it proves my accountants' initial view (and it is early days) is not unreasonable, then I will head in that direction.

I must add that my PAYG income tax position is top bracket, other IPs are positive with exception of my three townhouse development which I get keys for next month (townhouse development is owned by Family Trust) it will be slightly negatively geared but not by much.

At the moment I see moving the Karratha based 'cash cows' out of the company and into my name not making a lot of fiscal sense.

Thanks for your consideration.

Ian.

Ian, are the properties in the company owned by the company as trustee of the discretionary trust?

If so, does the trust hold other assets? If not, then why not leave them as is and take control of the trust - remove the ex from any role such as appointor or director. If she had given personal guarantees you may have to redo the loans again but shouldn't be any real need to transfer assets.

If the company owns the property in its own right then you could do somethign similar. Just transfer the shares - but this may lead to CGT being payable by the company.

BTW, you would inherit any CGT on transfers from marriage breakdown so this should be taken into account.

 

[Terryw]

Just a thought - I suppose you cannot leave them in the trust because the trust contains multiple properties with some going to you and some to her. Maybe trust splitting could help - but probably no CGT rollover relief.

If the trust is a hybrid trust then the units will also have to change hands too - roll over CGT may be available under s126-5 ITAA 1997.

I don't think there is any relief for a transfer from a company or trust to another company or trust - just to an individual. Nor is there relief from an individual to a company or trust. see s126-15.

 

[Ian (WA)]

Hi Terry,

Thanks for the reply; much appreciated.

I'll answer in blue font below.

Ian, are the properties in the company owned by the company as trustee of the discretionary trust? Yes this is correct.

If so, does the trust hold other assets? Yes, Trust owns the new townhouses - get keys 27th Feb. If not, then why not leave them as is and take control of the trust - remove the ex from any role such as appointor or director. Ex resigned as Director in 2005 and stayed on the paperwork as Company Secretary instead. I am sole Director.If she had given personal guarantees you may have to redo the loans again but shouldn't be any real need to transfer assets.

If the company owns the property in its own right then you could do somethign similar. Just transfer the shares - but this may lead to CGT being payable by the company. My accountant has put this concept forward that Ex transfers shares over to me.

BTW, you would inherit any CGT on transfers from marriage breakdown so this should be taken into account.

Yes the CGT inheritance has all been calculated, itemised in spreadsheet form and presented in the Draft Consent Orders we are trying to get Ex to agree in principle on

I've only recently started to read up on SMSF guff and am trying to get my head around the regulations to see if we can move properties in different company & trust entities about now while we have the chance.

My understanding may well be wrong, but I was hoping we could move the company held IPs into a SMSF to minimise, or negate CGT obligations should I sell either of those two properties after I am 60 or 65 yrs of age. I'm still reading material thrice over, so that hopefully some of it gels.

I also intend looking deeper into testamentary trusts (if applicable), so that my young blokes aren't unduly penalised after assets are passed on to them. Even testamentary trusts have their drawbacks, but this is all discussion matter for another time.

 

[Terryw]

hi Ian,

Testamentary trusts are amazingly beneficial, but you must die to establish one. Income from TT is classed as 'excepted trust income' and this can be passed to children beneficiaries who then pay adult tax rates on this income = approx $16,000 pa tax free per child.

They also have the normal trust benefits - if discretionary then asset protection etc.

Can even protect the assets of the family if a child were to have family law problems later.

I don't know enough about super to comment on transferring the properties direct to a SMSF.

But, I doubt there would be any stamp duty or CGT concessions. You would also have to meet all the requirements about contributing to super.

Is there any reason to transfer assets out of the trust? What about just changing the trustee? Who is appointor? that is the main thing - guardian too?

 

[Ian (WA)]

Just a thought - I suppose you cannot leave them in the trust because the trust contains multiple properties with some going to you and some to her. The trust holdings are going to be left entirely to me. The only property she gets is an IP which is at this point in my name only. She gets that house and $250K of my $340K Super. Maybe trust splitting could help - but probably no CGT rollover relief. .

If the trust is a hybrid trust then the units will also have to change hands too - roll over CGT may be available under s126-5 ITAA 1997. I haven't read up on trust splitting so it is foreign to me, but as I say, the EX doesn't have her name on anything in the company or trust. It is an updated MGS HDT.

I don't think there is any relief for a transfer from a company or trust to another company or trust - just to an individual. This is a little item that rings a bell for me; I just remember reading recently some info about company to company relief & company to individual relief etc......maybe it was more to do with real business and going concern status??? If the company to individual relief is available, this would go some way towards explaining my accountants thinking. I tried ringing her today but she is booked solid today & tomorrow. I'll certainly be booking some time with her to look into these bits 'n pieces.Nor is there relief from an individual to a company or trust. see s126-15.

Thanks again for your input Terry; it's that 'outside looking in' perspective I need to help balance the full on solicitor & accountant email barrage currently underway.

Cheers!

Ian.

 

[Ian (WA)]

hi Ian,

Testamentary trusts are amazingly beneficial, but you must die to establish one. Income from TT is classed as 'excepted trust income' and this can be passed to children beneficiaries who then pay adult tax rates on this income = approx $16,000 pa tax free per child.

They also have the normal trust benefits - if discretionary then asset protection etc.

Can even protect the assets of the family if a child were to have family law problems later.

I don't know enough about super to comment on transferring the properties direct to a SMSF.

But, I doubt there would be any stamp duty or CGT concessions. You would also have to meet all the requirements about contributing to super.

Is there any reason to transfer assets out of the trust? There was no driver from my end to move assets out of the trust, I think in light of my reply to your last post, my accountant was of the view that perhaps I would give up my job and scale right down to the point of just living of the investments. To this end putting those company & trust assets in my name solely would then avoid any potential tax office concerns with company distributions and payments of money coming out of the trust for me to live off. I'm somewhat embarrassed that I can't provide the conclusive reasoning, as i have been somewhat under the pump and some of the many issues being faced have not received my undivided attention. I will follow up and I will let you know as soon as I get to speak with my accountant again; she is doing a hell of a job as she is also facilitating discussions between solicitors after they both started going off on tangents peripheral to the core matters

What about just changing the trustee? I broached this very fleetingly with accountant and we left the discussion 'on hold' at the time. My thoughts were going down the SMSF path thinking that maybe there would be an avenue to change trustee companies in process of establishing a SMSF. We never finished the discussion, but I will be printing all this thread out and taking key notes to talk through with her hopefully in the next day or two. As far as I see it, I need to explore all avenues to make sure that I come out of this ok, that my sons come out ok and that we put efficient & effective structures in place when doing all these transfers under Consent Orders.

Who is appointor? I am the Appointor of the Family Trust & Sole Company Directorthat is the main thing - guardian too? Up until now I haven't formally appointed a guardian and it is not something I had considered; I will deal with it when the smoke clears a bit. Have been blinkered by Asset Split negotiations & Consent Orders; haven't even begun to look at Child Support formalities yet

Hopefully I can collar accountant from work tomorrow; I'll pitch some bullet points at her and post the details on here tomorrow night.

Thanks again Terry.

Ian.

 

[redwing]

Hi Terry,

A bit off tangent, but can a Trust sell a residential property to a SMSF, or would it get caught up in 'related parties'?

I'm presuming there would be CGT, Stamp Duty etc if sold/possible

 

[Terryw]

As long as the trust is not a related party.

If the trust is a related party then it couldn't unless the property was business real property.

 

[hursta]

transferring a property into a SMSF

My husband and I bought an investment property in Karratha about 18 months ago. We borrowed the whole amount, including stamp duty and related costs and so there is no equity in the property at all and definately no capital gain so far (in fact it's probably worth less than we owe!!) We pay 'interest only' and the rent just covers the expenses. My question is when we retire and access our super, is there some way we can pay out the mortgage using our super and then transfer the property into the name of the SMSF so that the rental income is tax free? Otherwise, the income generated from our super will be taxable. I'd appreciate any advice about what to do. We're thinking of retiring in 1 to 2 years.

 

[wobbycarly]

My husband and I bought an investment property in Karratha about 18 months ago. We borrowed the whole amount, including stamp duty and related costs and so there is no equity in the property at all and definately no capital gain so far (in fact it's probably worth less than we owe!!) We pay 'interest only' and the rent just covers the expenses. My question is when we retire and access our super, is there some way we can pay out the mortgage using our super and then transfer the property into the name of the SMSF so that the rental income is tax free? Otherwise, the income generated from our super will be taxable. I'd appreciate any advice about what to do. We're thinking of retiring in 1 to 2 years.

Your answer is here. You are a related party to the SMSF.

As long as the trust is not a related party.

If the trust is a related party then it couldn't unless the property was business real property.

 

[hursta]

What does "business real property" mean? The house has always been an investment, does that make it business?

Can we 'sell' the property to our SMSF when we retire and then use our super to to buy it and pay off the mortgage? If we can do this, will we be liable for stamp duty, even though we will still really be the owners.

Do you have any suggestions for how we can go about this? We can't really sell the property as I suspect we'd end up with negative equity. We're prepared to keep it but obviously don't want to use our super to clear the mortgage, but then end up having to pay tax on the income. Help!!

 

[MIW]

SMSF - You should totally control it if you can!

Why not move out and rent with others so you pay portion of rent. Surely they may have student accommmodations or something similar of that nature.
I am a big advocate of a SMSF as I run and manage one myself since 1995. However, from your questions a little bit more of education is warranted.
To buy a property via SMSF is feasible but costly so it depends on $ amount you can rollover there at present.
Firstly to buy a property your SMSF must be setup as a company trustee rather than an individual to borrow funds.
Secondly a trust fund in Super name needs to be set up too.
Thirdly a separate trust needs to be setup for the purchase of the property with a loan.
So alone the set up costs for these would be around $5-$8K in my opinion.
On top you have running costs such as accounting fees, ASIC, comany statement. It's all possible but it takes a little bit of education.
Also, the rules are quite stringent so you cannot live in a house you purchase in Super, it has to be at arms length.
Your LVR worries me so I hope you build a buffer of somekind, have a LOC or offset account and deposit as much as you can so you can be ok for at least 6 months if anything unexpected happens.
If I can just give one word of advice property investment is not a quick get rich scheme but rather time and motion investment for compound growth, so have plan B for contingencies, and be disciplined enough to continue to learn.

 

[DaveM]

What does "business real property" mean? The house has always been an investment, does that make it business?

It means a business/commercial property such as an office, warehouse etc. Not residential property.

 

[Terryw]

Business real property is defined at s66(5) SIS Act

business real property , in relation to an entity, means:

(a) any freehold or leasehold interest of the entity in real property; or

(b) any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer; or

(c) if another class of interest in relation to real property is prescribed by the regulations for the purposes of this paragraph - any interest belonging to that class that is held by the entity;

where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not), but does not include any interest held in the capacity of beneficiary of a trust estate.

 

[Terryw]

And, see the ATO's interpretation of the law at

SMSFR 2009/1
Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993
http://law.ato.gov.au/atolaw/view.htm?docid=SFR/SMSFR20091/NAT/ATO/00001