Self managed super funds (SMSFs) have been in the spotlight – for positive reasons – in the past six months. Why? In July last year the Tax Office clarified the rules under which now all self managed super funds to borrow money to buy property.
As a result, we’re looking at whole new ball game. Although SMSFs have always been able to own property, until recently, the rules have not been clear. Since the clarification, We have been inundated with enquiries from clients interested in setting up SMSFs and using them to acquire property.
In simple terms, the current status:
• Your SMSF can buy residential and commercial investment property
• You cannot transfer a residential property already owned into your SMSF
• Your SMSF can borrow up to 80% for a residential property or up to 65% for a commercial property
• You can lend money to your SMSF to buy a property
Some advantages of using a SMSF include:
• Greater investment choice for you
• You have control over investment strategies
• You can invest borrow to invest in residential and commercial property
• More efficient estate planning and ultimately more control
• You get the ultimate in asset protection
• You can own your business' property into your SMSF
• There is no Income & Capital Gains tax in retirement (if asset held more than 1 year)
• Your lender can't take your home if you default, only that property it mortgaged
• Negative gearing counters your contribution tax, it's great!
People in their 50s are leveraging their SMSF to fast track their home loan reduction by investing in high-growth properties and selling without of capital gains tax worries.
Say you're 55 and you have a $400,000 mortgage on your own home. You buy a residential investment property with good growth. Over 7 - 10 years, if you buy the right property, that's going to double in value and better.
At the end of that period, you're retired and the super fund can sell that property and the capital gain out of it is tax-free and pay down your home loan. Really, every investor over 50 with $170,000-$200,000 should be looking at an SMSF as an option. Oh, if you don't have $200,000 in your super, don't worry there strategies to get in there and get some great tax benefits along the way.
Investing in property this way gives you the same control over your investment that you would have buying it yourself. The only difference is that you can’t access the profits until you retire. But then again, that’s the whole point of super funds.
There are many complex laws restricting the use of SMSF's to borrow money which you need to understand. You really do need to get some good advice from a qualified financial consultant first before implementing any strategy, as they will be able to help you better understand and abide by these laws and also to advise you whether this is an appropriate solution based on your needs and circumstances.