Who has their own SMSF?

[landlubber]

Different issues. There is no benefit in selling a privately held IP and trying to contribute those funds to a SMSF. CGT on sale is assessed outside the SMSF, just like any other asset sale owned by you personally. The contribution on sale receives no benefit for CGT purposes. Withdrawals of super after post-preservation date and a release trigger are tax free for all contributons.[/QUOTE]

Programmer, We maybe talking about two different situations here but I'd appreciate your input. I'm advised that for self employed people (fulltime property investors) where no employer is contributing to the SMSF, then fully tax deductible contributions can be made to the SMSF. Theses contributions reduce the income in the f/y which includes the CG. The contributions are taxed at 15% going into the fund.

I think the example you give may be for employees where the employer is making contributions. Please expand a little if possible ? (I've bought a lot of IPs but have never sold any !!) Happy to learn.

Thanks
LL

 

[Programmer]

OK, that got me thinking. I used CBUS Pdf as a guide, and excluding Insurance, for the same amount of Superannuation, their fees came in at .7% Phew, got that bit right.

Yep, fair enough. Some IF's are a little more expensive than others. I actually think you've got a good deal on your accounting/actuarial fees. I'm guessing you've got well over 200K in your SMSF (no need to respond to that), just that there are many with much less and the proportion of costs is much higher.

I think for me it is more of a case that a few years ago I could not see why it was worth sacrificing income, to put into super. It just kind of disappeared into 'an account' with annual statements. Now I can see it grow (mostly!) make decisions, I see that when I salary sacrifice the money appears in the Super fund, so I guess it just makes it far more compelling for me to put money into it. So I do.

Yes, I can see the power in that. To many the SG contributions by their employer etc are just an irritating message on the payslip. That is, they feel it's kinda lost for decades, and the rules will change, and the preservation age will continue to climb, and the fund managers will lose it anyway... etc etc.

Cheers,

 

[Programmer]

We maybe talking about two different situations here but I'd appreciate your input. I'm advised that for self employed people (fulltime property investors) where no employer is contributing to the SMSF, then fully tax deductible contributions can be made to the SMSF. Theses contributions reduce the income in the f/y which includes the CG. The contributions are taxed at 15% going into the fund.

I think the example you give may be for employees where the employer is making contributions.

Yes, they are two different issues, for different reasons (kind of)

The first point I made was regarding CGT.

There is no benefit in selling a privately held IP and trying to contribute those funds to a SMSF. CGT on sale is assessed outside the SMSF, just like any other asset sale owned by you personally. The contribution on sale receives no benefit for CGT purposes.

What I mean is that CGT is assessed at the sale of the asset (up to owner to reduce as far as possible). It's a separate event. You buy for 100K, sell 150K, a simple 50K gain (not considering anything else). Contributing this gain to super (self-employed or not) does not reduce CGT, in itself. That's the first thing, and I know it'll seem I'm splitting hairs here.

Yes, as you say, making tax deductible contributions with that 50K recieved on the sale of the said property could ultimately reduce your tax to nil (but a tax loss is not allowed), and therefore the "effective" Cap Gains. I agree. Again, as you've said, the contributions (and income) are taxed at 15%.

From 1/7/07 there is no limit on contributions that the self-employed can make, AND they can get a FULL deduction. EMPLOYEES too now have no limit on contributions (made by employer), but the contributions are not deductible (to the employee).

Although fully deductible by a self-employed person, there are now limits on the concessional (deductible) contributions paid to the fund (that is, those contributions made to the fund that are taxed at 15%) It's called the "concessional cap". The cap for 07/8 is $50K, but for those over 50 it's 100K for the years 2007/8 to 2011/12. Where contributions exceed this cap, they are taxed at 46.5% The top MTR. So, if the amount you contribute to your SMSF is above the cap, you'll be hit.

There's another thread running at the moment regarding the Somers and contributing their sale proceeds to super - with the same comments re CGT. I was wary on the post because I haven't read the article from April API yet, and from what I'm aware, contributing to super does nothing to get around CGT issues. I understand it all goes hand-in-hand with the tax one pays. As I've said, I'm interested in the article because I'd like to know whether we have the wrong end of the stick, or they've found some other way of reducing the ultimate tax paid.

PS. I'm not an Accountant so please satisfy yourself on anything I've said. This is just the way I understand it.

 

[landlubber]

Programmer... Now you're really confusing me.

I understand that the way that "CGT" is calculated is by adding the CG in any f/y ( after possible 50% discount and other reductions ) to your other income in that f/y. Then normal income tax rates apply ( the common phrase is "marginal rate".) In fact, it seems to me, the term Capital Gains Tax is a mis-nomer. It's ALL just bleeding income tax at income tax rates.

My understanding is CGT is not a "separate" tax as you seem to imply. If you reduce/eliminate your income in any f/y (which will include your CG in that f/y) then you reduce your income tax /CGT. Contributions to SMSF for the self employed reduce that income.

Are we on the same page ?
LL

 

[Programmer]

In fact, it seems to me, the term Capital Gains Tax is a mis-nomer. It's ALL just bleeding income tax at income tax rates.

Yeah, we're on the same page, and my post probably confused... sorry.

You're right, it is

ALL just bleeding income tax at income tax rates

. All I'm saying is that it's assessed separately. There's actually several types of income including ordinary, statutory, and exempt (from memory) CG income is just calculated differently because different rules apply depending on how it's derrived. For example, capital losses can only be deducted from gains in the same f/y etc. In the end, it's all income to you and I.

You are correct. My point was just that it appeared (in another thread as well) that some might think that the actual CGT component of income could be reduced by contributing to super. Have a look at the other thread on reducing cgt by contributing to super.

Cheers,

 

[asdf]

Interesting thread but for those who are years away from accessing withdrawals, super sux! We don't want to be a dinosaur when its finally time to enjoy ourselves. Thanks big brother for wanting us all sheeps to conform to the retiring model at 60. I want that cake now and I want to chomp at it.

 

[landlubber]

Absolutely asdf. Right on the money !

For most of the lambs, superannuation (in any form) will merely serve to basically replace the pension at pension age. That's all the gov't means it to do. They've looked after themselves and the public servants with nice defined benefit pensions from the future fund (with OUR money from the Telstra sale ...why wasn't there rioting in the streets ???) ...... the rest be damned.

LL

 

[keithj]

Interesting thread but for those who are years away from accessing withdrawals, super sux! We don't want to be a dinosaur when its finally time to enjoy ourselves. Thanks big brother for wanting us all sheeps to conform to the retiring model at 60. I want that cake now and I want to chomp at it.

Agreed, Another thing to bear in mind is that the age when you're allowed to access your super is in the govt's hands.... it's currently 60(?). What age will it be when you get to retire ? 65...70 ?

 

[landlubber]

Remember Kerry ...

Good point keithj ...and as the population ages ...and the gov't of the day has to find more cash to pay for ageing pensions, health costs etc ...as at the same time the trillions in super keep growing ... how long will they be able to keep their sticky fingers out of that lush pie ...( and when they know the fund managers are getting THEIR trailing commissions each and every year.)

In super we have NO faith ...but ...as a tax free environment / vehicle we'd be offending the late , great Kerry Packer if we didn't make hay while the sun shines.

LL

 

[bellingenbob]

There's a rule of thumb that you need around $150,000 to $200,000 to make setting up an SMSF economical.

You can still have your non-property investments (shares, managed funds and the like) managed by a Financial Planner (I do) within the SMSF if you don't want to monitor the market every day.

The advantage is, you get to control the fund's investment strategy. For example, you may even be able to convert poortly performing managed fund investments into direct property by having your SMSF purchase Units in your Hybrid Property Investment Trust (subject to your Accountant deeming that suitable for your particular circumstances.

 

[Aaron Sice]

There's a rule of thumb that you need around $150,000 to $200,000 to make setting up an SMSF economical.

that's bollocks.

i had $30k and is worth $60k now after 2 years.

where did this magical $200k come from?

people like us won't need super anyway - it's just a new tax haven for us.

once an investor, always an investor. investors don;t retire at 65 and buy a caravan. they are already retired.

 

[Qlds007]

that's bollocks.

i had $30k and is worth $60k now after 2 years

I tend to agree you can start with a minimal amount however the early years when the balance is at its lowest will mean the costs of set up and administration are relatively high as a percentage to the balance.

I have set up many SMSF for clients with an opening balance of circa $50K however there are usually other reasons why they want to take this course of action.

I also have to disagree that you may even be able to convert poortly performing managed fund investments into direct property by having your SMSF purchase Units in your Hybrid Property Investment Trust (WITH or without your Accountant deeming that suitable for your particular circumstances.

 

[Programmer]

There's a rule of thumb that you need around $150,000 to $200,000 to make setting up an SMSF economical.

that's bollocks.

Bluecard, belligenbob did not say "you must have".

It is not 'bollocks' (as you so eloquently put it). There is a rule of thumb that says you're costs proportions should not exceed about 1% (some say 1.5%, others 2%) of the balance - however it's a rule of thumb. It's called a rule of thumb, because it's a heuristic or guideline to be aware of.

What people ultimately do, is up to them. This is where the "... magical $200k c[a]me from. Guidelines aren't bollocks, they're guidelines.

 

[monoply]

I always heard 50k as the figure bandid around as a good start up figure. Guess it depends on what sort of a return you are confident you can get. Looks like annual costs are 2k, so your going to need to be making more than that to make it worth while.

 

[josko]

I always heard 50k as the figure bandid around as a good start up figure. Guess it depends on what sort of a return you are confident you can get. Looks like annual costs are 2k, so your going to need to be making more than that to make it worth while.

I started mine with near 80k.
The 2k, or as mine costs $1500, is the Tax return as it is audited by the ATO every financial year.

 

[nonrecourse]

Guidelines to impoverish small investors

Bluecard, belligenbob did not say "you must have".

It is not 'bollocks' (as you so eloquently put it). There is a rule of thumb that says you're costs proportions should not exceed about 1% (some say 1.5%, others 2%) of the balance - however it's a rule of thumb. It's called a rule of thumb, because it's a heuristic or guideline to be aware of.

What people ultimately do, is up to them. This is where the "... magical $200k c[a]me from. Guidelines aren't bollocks, they're guidelines.

Its a bit like the common garden "advice" given to first time property investors that they purchase the I.P. in their name when they first start out. If your serious about investing to attain financial independance then you need to walk the walk as well as talk the talk.

We started with 6k in 1994 in our super and immediately set up a unit trust that the super controlled. Today it is a golden goose with two commercial properties in it and we are looking for a third. At the time we were told it was illegal etc, etc. We paid a Q.C. for follow up advice a few years later when our accountant jumped up and down about the trust borrowing money to purchase the first commercial property when all the units were owned by the super fund.

When the advice came back that yes what we were doing was legal the accountant went gang busters putting all his clients who could afford to onto it and charged them hefty fee's. When we suggested that we should get a cut he wasn't too impressed with our cheek

 

[Programmer]

Its a bit like the common garden "advice" given to first time property investors that they purchase the I.P. in their name when they first start out.

Well, there you are then. Many SS investors are the "common garden variety" type. Many SS investors still do not invest via trusts - and some, , even use their own name! Just terrible!

There are good reasons to invest via trusts, as individuals, TIC's JT's etc etc blah blah. It depends. Any professional that says it's ALWAYS good to invest one way without giving full consideration to current and future considerations is, IMO, your 'common garden' type.

If your serious about investing to attain financial independance then you need to walk the walk as well as talk the talk.

Hey mods' can't we get a little smilie that looks like the 'cool' one, but does a little 'jiggle' down a pathway?

Non, It's (seriously) great that you're super fund is doing well. I'm happy for you. I am interested in your approach though - because I doubt the setup would pass muster today. Not the fact you invested in business real property, but at the time you got around the borrowing rules by going via a unit trust. With the current issues regarding installment warrants it'd be a nice case study. Care to share the history with us?

Now, have to go practise that walk...

 

[sailor]

Yes, I too have a SMSF. Started it 7 years ago, and I love having complete control over it. Started with about $65K, and tis worth nearly 10 x that now. Have 2 x resi IP's and some shares in it. Doesn't take much time to do the accounting...10 mins/month. The accountant does the tax and arranges the audit each year. Tis all good!

 

[BillC]

I have just started my own SMSF and am rolling the fund I have from the company I worked for
The company Super has been terrific until the last 3 months
So I have decided to run my own
If you buy and sell shares and make a profit is the capital gains tax treated
the same with a SMSF
What advantage is there to have IPs in a SMSF and how do you structure this

Bill

 

[Raddles]

Hi there
with cgt it is slightly different proportions you need to take into account - I believe it is 1/3 rather than 50% for an individual if the shares are held more than 12 months.
You may need to read some of the recent threads on installment warrants to see how you can buy IP's in your fund.
I note we too have our own fund which is mainly shares, cash and some managed funds. We started with $70K and are now over the $250K mark.
I have been trying to talk my husband into buying property in the fund - but haven't managed to convince him yet.
thanks