I am wondering if anyone can point us in the right direction on how we go about setting up a Self-Managed Superannuation Fund into which we wish to purchase a residential property (as per the new Superannuation Rules.) We are currently non-resident, but will probably return to Oz next year. All the "Advisors" rushing to Dubai to give advice since the new rules came into effect, wish to assist by taking a percentage of the fund each year. We are looking to pay for services provided, ie for initial advice on the new rules, setting up of the fund, and then payment to submit annual returns each year, not a percentage of the fund for life! We will also purchase the property ourselves, not with assistance from advisors.
Thanks
SandyHI there
you may like to do a search of the site as you will see this has come up before. Residential property normally cannot be transferred into a self managed super fund because it will infringe the in house asset rules. Commercial property can be held in a fund.
Just remember that a self managed fund can't borrow – so you will be tying up equity in your fund you can't use at a later stage
thanksNo the law just just changed – and you definitely can put residential property into Super. It has to be unemcumbered (although one property advisor here has a way round that as well…. but I don't wish to do that. – I wish to buy unencumbered) I just need someone to set it up!
thanks
SandySorry further to my last post – I know you can't transfer property already owned into the fund – but you can buy a new reesidential property into the fund. It is then capital gains free and the rental is tax free. We are at an age where we can shortly start using that income.
SandyHi there
we use products from Superannuation Australia for our super fund – look at http://www.taxpayer.com.au – for set upI still think you are limiting your options by having residential property in a super fund which can't borrow – nor use the equity you have in that property.
Rental will attract the 15% tax on income – capital gains are at 10% if you sell – I really think you need to get some informed advice
thanks
raddles wrote:.Rental will attract the 15% tax on income – capital gains are at 10% if you sell – I really think you need to get some informed advice
This is true in the accumulation phase but not in the pension phase. There is no tax to pay in the pension phase.
However I agree you need to get some informed advise.Do you have a good accountant in Australia who could set up a SMSF for you. The ongoing costs of maintaining a SMSF are about $3500/year for accounting etc.
Cheers
ElkaThe 10% discount Capital Gain rate is only applicable if the asset is held for 366 days otherwise it is also taxed at 15%.
Richard Taylor | Australia's leading private lender
Thanks everyone for your responses. I have now been given the name of a good accountant who is very experienced in this area – so hopefully can get some unbiased information.
Cheers
SandyWhy not just own the property in a trust or your individual name? LEVERAGE is a key ingredient to growing a portfolio and super just seems to kill this concept. We have decided not to take a salary through our business and it is structured that we are only investor/share holders. The main reason is that we did not want to throw away money in compulsory super when it can be used more wisely in other capacities. I just don't understand why people do it???????
It depends on where you are on the age ladder of life – and we are just a few years off the 60 mark! We already have a reasonable number of investment properties outside a fund (never enough of course!), however it seems sensible (but maybe not) to take advantage of buying at least one inside a fund, so that we have both our own house and one other property capital gains free in a few years' time. As I said at the very start of this thread and why I started it – it is very difficult getting unbiased, genuinely good advice on this subject., without someone trying to sell you their product.. Also we have money sitting in Super, which has done almost nothing for years – and I believe invested into a property it would be worth a lot more in 5 to 8 years' time! Maybe there is room for another book!
Cheers
SandyInteresting topic as we are exactly in the same situation.
We use to have our Super in AXA. Back in November we created our SMSF and moved all the cash to the new Super Fund. Timing was very lucky as after that the market went down the hill.
Now we have the cash and we are shoping around for a NON RECOURSE loan to laverage a residential property.If anyone could recomend a good broker it would be appreciated.
Cheers
Eleven6
Sorry irrespective of the recent change in rules a residential property has always been able to be held in a SMSF and certainly does not infringe the Inhouse Asset Rules.
The property could not be rent or occupied by the Trustees but certainly could always be rented in the open market.
The change in SISA legislation last September meant that the Asset could be purchased using a 3rd party Warrant (Bear Trust) and this entity could in turn borrow from a separate lender or the Trustee themselves using a Line of Credit on their PPOR.
Unfortunately the Tax legislation has meant that these new entities are open to strict audit each year and therefore the structures should be set up by specialised lawyers. If the SMSF does not make provision in the Trust Deed this will need to be reviewed and is not cheap. The last one we did for a client last Monday they charged around $9500 merely to set up the Trust Deed with a Corporare Trustee. Other lawyers i have seen will charge upto $20K.
Once the Bear Trust has been established then you are free to purchase your own asset (Subject to of course finding a lender lend against the security) and there will be no ongoing fees other than the usual annual audit fees from your Accountant.
Richard Taylor | Australia's leading private lender
Eleven
I have completed about of these loans over the last 7 months so feel to drop me a line if you need some more information.
Richard Taylor | Australia's leading private lender
Richard,
Thanks for the e-mail.
The deed of our SMSF says that the trustee can invest in "financial products including installment warrants, options, futures..etc…" which I think provides the fundation to invest in Bare Trust Warrants without the necessity to change the trust deed.
In regards with the non-recurse loan,I have the following general questions:
· Some lenders DO NOT request personal guarantees as a trustee for the SMSF HOWEVER, they ask personal guarantees in the client personal capacity which I think contravene the legislation. Is this right?
· Once the loan is repaid, and the property is transferred into the super fund, does this will crystallise a Capital Gains issues and also Stamp Duty issue? I know the Federal Government has confirmed Capital Gains will not apply but States haven’t ruled on stamp duty. What will be the strategy to avoid this situation?
· Once the property is transferred into the SUPER fund, will this contravene the contribution limits (I think if bigger than 450K) so tax rate will be 46.5% rather than 15%? If so, what will be the strategy to avoid this situation?I have so many questions but if you could give me some lights on these ones, i would really appreciate it.
Eleven
Eleven,
To answer your questions:
1. The ATO have come out and determined that personal guarantees are in deed in breach of the legislation and can no longer be requested in relation to Property Gearing Products.
2.There is a school of thought that in line with equity warrants that the transfer back to the SMSF does not create a CGT event. The ATO recently decided is had had enough of this exception being used (initially established for the telstra and CBA floats) and is reviewing the situation. They estimate it will be at least 6-9 months (May be longer if new legislation is required) before they have an answer but I would suggest it will not favour the tax payer. As for Stamp Duty in most states this type of transfer is excempt as the ultimate beneficiaries have not chnaged.
3. The transfer into the superannuation fudn is not a contribution but considered a purchase of an asset by the SMSF by using another asset the proeprty warrant.
Please note the government is currently reviewing the change in legislation that allows proeprty warrants and it may be repealed or limited in some way. If you are looking for a product that does all this for you and does not rely on the recent legal changes look at the Sovereign-Lasseter Geared Asset Select trust. It does what warrants do and is much cheaper and has no defined period and is run as a managed investment scheme so has more checks and balances for the investor. (Please note I designed this product so I have a vested interest) Go to http://www.lasseter.com.au
Regards
Michael
Have a look at the articles on http://trustdeed.com.au
there are some good articles on there regarding strategies.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
HI, most of your info is correct. I just set up a fund in May. I can buy a residential property in the name of the super fund but using borrowing from personal assets, which I assume is what you'd do as you have other IPs.
The rebates etc make it worthwhile. However, I'm building into the equation the possibility that the party may come to an end sometime. I suspect that a threshold will come onto play in future. I'm very sceptical that the govt will be so kind as not to tax pensioners who have a high enough income to be taxed.
At 55, one can draw a pension with 15% rebate thereby making the fund income tax free.
I placed cash instead of IPs in the fund while maintaining the maximum deductible IP loans outside the fund. Gives a small margin to pay accounting fees etc Don't make much but cost to maintain fund is almost zero. If interest rates come down half %, I pass GO.
Interesting times. Good luck,
KYNot sure whether you have typed this as it reads but it is clearly not true:
You can buy a residential property in the name of the super fund but using borrowing from personal assets, which I assume is what you'd do as you have other IPs.
Richard Taylor | Australia's leading private lender
Financial / Tax / Accounting specialists
Speak to Mt Gravatt Branch BRISBANE QLD AUST – Stephen Lennon or Karen
I have set up my own SMSF and have property residential in the fund
Has to be unencumbered
All going well with it all – no probs, they set up structure, and do the returns/ audits/ adviceThanks
Just to clarify AGAIN.
You can purchase property within your SMSF however cannot borrow against personal assets to fund the acquisition.
A SMSF CAN borrow through an Instalment Warrant or Bear Trust structure to buy property so it does not have to be unencumbered.
Richard Taylor | Australia's leading private lender
You must be logged in to reply to this topic. If you don't have an account, you can register here.
