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Can I rent a property from my SMSF?

Friday, July 27, 2012

Can I rent a property from my SMSF?

You can not rent residential property from your own SMSF; however in some circumstances you will be able to rent a commercial property if it is for business purposes. The rent will have to be at a market rate and the premises will need to be for running your business.

Can I buy property for my SMSF that I already own personally?

Friday, July 27, 2012

Can I buy property for my SMSF that I already own personally?

In some instances yes, it will depend on whether the property is residential or commercial. You can buy a commercial property that you already own and even borrow against it as long as you meet the borrowing criteria i.e. a maximum LVR of 72% for residential property and 63% for Commercial Property.

If you want to buy a residential property then it must be at arms length and not currently owned by a related party, it must be purchased from and leased to an unrelated third party.

Buying Property through a SMSF

Friday, July 27, 2012

Buying Property through a SMSF

If you are looking to control your Super and are unhappy with your Industry Super Fund returning consistent poor or negative returns like many other Australians you now have more options in regards to a SMSF.

In 2007 the Australian Government made it possible for ordinary Australians to borrow money to buy property in their SMSF.

Before setting out on this journey you must ask yourself 3 simple questions as everyone's goals will differ and each of us is in a unique financial position.

  1. Do you have an Existing Industry or Platform Based Super Fund with a combined minimum balance of $80,000?
  2. Are you looking to control your Super Fund Investments?
  3. Are you looking for a low cost Self-Managed Superannuation Fund Solution?
  4. If so contact us at WFS Canberra for your free SMSF Consultation to see if buying a Property in an SMSF will work for you. www.wfscanberra.com.au

Why not own property through a SMSF?

Friday, July 27, 2012

Why not own property through a SMSF?

Many people feeling depressed and out of control due to the recent turmoil in global financial markets are looking for different ways to invest their superannuation.

How does a SMSF work?

It works very much the same as a other superannuation funds. It accepts contributions from members, and invests and manages those contributions and subsequent earnings.

You become the trustee of the SMSF and are involved in all the decision made by the fund. This means you are responsible for tasks such as administration and accounting, managing tax implications and ensuring an investment strategy is in place. However, SMSF professionals at WFS Canberra www.wfscanberra.com.au are able to complete all of the administrative tasks for you and assist you in every aspect of running your fund.

What are the benefits of a SMSF?

- You have control over how and where and when your money is invested.
- There can be fee savings if you use the services of WFS Canberra.
- The potential to use tax savings strategies not possible in other types of funds.
- Purchase your business' real property.

- Puchase residential investment property

Amendments to the Superannuation Industry (Supervision) Act 1993 ("SIS Act"), effective from 24 September 2007, allows superannuation funds to borrow money to acquire any asset which a SMSF is permitted by law to acquire directly, which includes Property

Case Study: Borrowing to Purchase Residential Investment Property

Assumptions:

Josh is 48 years old.
Josh is looking to purchase an investment property for 400,000 (net 5% yield).
Josh wants to fund the investment property through an quity line of credit against his principal residence.
Josh has accumulated $200,000 in superannuation and has a SMSF.
Josh could fund the investment property purchase though his SMSF with himself as the lender to his SMSF.

 

Benefits:

The benefits of Josh owning the investment property in his SMSF are substantial:

 

                                                        Individual                                 SMSF

Rental Income (30yrs)                          $878,054                                $878,054
Interest Expense (30yrs)                      ($780,000)                              ($585,000)
Rental Tax Liability/Benefit (30yrs)        ($40,692)                                ($9,921)
Capital Gain on Property                      $418,563                                 $418,563
CGT Payable                                      ($86,852)                                 $0  

Total Return                                        $389,073                                $701,696

Structure Benefit                                                                              $312,623

* Key Assumptions:
5% rental yield
2.5%pa rental growth
5%pa capital growth

Canberra's Property Market Outlook

Friday, July 27, 2012

Reports are showing a more positive outlook for the ACT property sector despite continuing concerns about the Federal political environment and the outlook for economic growth in the Territory.

 

The Property Council of Australia-ANZ Property Industry Confidence Survey showed a shift in sentiment from 94 on the index for the March quarter to 101 for the June quarter. A score of 100 on the index is considered neutral. 

Catherine Carter, Property Council ACT Executive Director says the latest Survey shows the ACT was the only state or territory that recorded a shift from overall negative sentiment in the March quarter to positive sentiment in the June quarter.

Confidence in house price growth has also shifted from a negative outlook to a positive outlook between the two quarters.

Confidence index jpg April 2012

ANZ Head of Property Research, Paul Braddick, says ACT respondents to the survey had a “moderately balanced view of the property sector, with a confidence index of 101, reflecting an uncertain outlook for ACT employment with the existing budget pressures and a sharp unwinding of the boom in dwelling construction through 2011.”

Canberra's Property Market Outlook

Friday, July 27, 2012

Reports are showing a more positive outlook for the ACT property sector despite continuing concerns about the Federal political environment and the outlook for economic growth in the Territory.

 

The Property Council of Australia-ANZ Property Industry Confidence Survey showed a shift in sentiment from 94 on the index for the March quarter to 101 for the June quarter. A score of 100 on the index is considered neutral. 

Catherine Carter, Property Council ACT Executive Director says the latest Survey shows the ACT was the only state or territory that recorded a shift from overall negative sentiment in the March quarter to positive sentiment in the June quarter.

Confidence in house price growth has also shifted from a negative outlook to a positive outlook between the two quarters.

Confidence index jpg April 2012

ANZ Head of Property Research, Paul Braddick, says ACT respondents to the survey had a “moderately balanced view of the property sector, with a confidence index of 101, reflecting an uncertain outlook for ACT employment with the existing budget pressures and a sharp unwinding of the boom in dwelling construction through 2011.”

Australia's Property Market outlook

Friday, July 27, 2012

Housing market to remain soft: NAB survey

Australia’s housing market is predicted to remain soft over the next year, with a NAB survey predicting a decline in house prices of 0.7 percent.

NAB’s Residential Property Index fell in the June quarter, dropping to -11 from +5 in the first quarter, weighed down by weaker conditions in Victoria and NSW.

The survey polled around 300 real estate agents and property managers, property developers, asset and fund managers, and owners/investors.

Victoria (-43), SA (-15) and the NT (-15) posted the lowest scores on the index, while WA (+34) and Queensland (+2) are the only states in positive territory.

NSW slumped dramatically over the period, from +28 in the previous quarter to -13 by the end of June 2012. Victoria’s index score moved further in the red, from -16 to -43.

Key findings of the report include:

  • National house prices fell by 2 percent in the June quarter, with the biggest falls in Victoria (2.9 percent) and NSW (2.3 percent). They are expected to fall by 0.7 percent nationally over the next year, but grow by 1 percent over the next two years
  • Average national rent growth slowed to 0.4 percent in the June quarter, down from 1.1 percent in the first quarter of the year. The long term outlook is for softer rents in all states over the next two years, except for WA
  • Respondents indicated tight credit conditions and housing affordability are the most significant constraints on new housing development. Employment security is now viewed as the biggest impediment to purchasing existing property, especially in Victoria and Queensland
  • Capital growth expectations are strongest in the sub-$500,000 price range, while the outlook for properties worth more than $2 million remains poor

Year End Tax Tips for Property Investors

Friday, June 29, 2012

Year End Tax Tips for Property Investors

n  Documentation – when it doubt – keep the record anyway so your Accountant can claim it if possible.

n  Depreciation – Have you got a depreciation report for every property?  If not, get one.  It is free cash in your pocket.  We use a company that guarantees more cash to you than the report costs

n  Travel – ATO accepts 4 trips per year to the property and maybe more if justified.  Keep travel expenses and diaries.

n   Interest Expenses  - Learn how to maximise tax deductible debt and minimise non tax deductible debt

n  Pre-Pay Expenses – interest & other expenses can be pre-paid 12 months in advance

n   Manage Capital Gains & Losses – if you are selling a property speak to your Accountant first.  An Accountant experienced in CGT can save you hundreds of thousands of dollars by correctly planning Capital Gain

n   Manage Capital Losses – if you are selling an Asset for a Gain are these any Assets you can also sell for a loss to help you minimise the gain?

n   PAYG Variation – get it done now ready for next year. Extra cash in your pocket per fortnight.

SMSF and Property

Monday, June 18, 2012

Hello All,

First you tube video has been uploaded:

http://www.youtube.com/watch?v=222bPwA2LxQ

 

Topics include Loans in SMSF. Property in SMSF, CGT in SMSF advantages in SMSF and DIY super. 

Hope you enjoy it!

feel free to suggest topics you would like me to discuss.

 

Catherine

 

SMSF and Property

Friday, June 01, 2012

  A new battalion – property and superannuation join forces?

 

Since time immemorial it has been argued as to whether the benefits of gearing property investments outweighed the tax concessional environment offered by superannuation.  Now the battlefield has changed dramatically.  Why would you choose one over the other when you can have the best of both worlds.  New laws introduced in September 2007 allow Self Managed Superannuation Funds (SMSF’s) to, for the first time, buy geared property in a simple and uncomplicated manner.  SMSF’s can now select a property of their choice, be it residential or commercial, and borrow up to 80% of the value of the property. 

 

The most common investment strategy seen in the baby boomer era was to invest all surplus funds into accessible investments including property and shares and then cashing these in and contributing the funds into super just prior to retirement.  The only disadvantage of this strategy was a potentially very large Capital Gains Tax bill. 

 

However, this strategy has been dramatically hampered by the Governments new contribution rules which only allow $25,000 of concessional contributions per year.  

 

The effect of the new contributions rule is to significantly disadvantage generation X and Y.  It is fair to say that most young singles and young families have better things to do with their money and more pressing needs than to make the most of their $25,000 per year contribution limit.  Then when they are getting closer to retirement and have more surplus funds they will be prevented from, like their pre-decessors, making large contributions just prior to retirement.

 

Why would you buy property in a SMSF instead of personally?

 

For many reasons including;

 

  • you get the benefit of ‘leverage’,
  • a maximum of 15% tax on any rental income in excess of costs,
  • you receive a tax deduction for the loan repayments of principal (which is normally impossible) via salary sacrificing the amount required to cover the shortfall,
  • asset protection – the asset is protected from creditors in the event of a lawsuit or bankruptcy (some conditions apply),
  • the property can still be sold and the loan repaid at any stage,
  • any capital gains on the property when sold will be taxed at a maximum rate of 10% (if asset held for more than 12 months)
  • But the biggest incentive of all – if you keep the properties until age 60 and commence a pension from the fund,
  • any capital gain on the property will be TAX FREE,
  • any rent on the property will be TAX FREE,
  • any income paid out to you will also be TAX FREE.

 

The laws are only new and law complying products are now being introduced and marketed.  It is envisaged that these products will hit the market like a storm once investors realize the potential.  SMSF's are now the largest segment of the superannuation industry and it is likely that this figure will increase exponentially once knowledge of the loan products becomes widespread.  It is also interesting to note that this may be the first time in history that all advisors (financial planners, accountants, auditors, property advisors and mortgage brokers) have a common ground for advising clients.  All advisors have something to gain by assisting clients into these products. It’s not only a busy time ahead for advisors but a time to join forces and put a cease fire on the battle.

 

The team at Wholistic Financial Solutions can assist all trustee of SMSF’s consider this option in regards to borrowing to buy property within their super fund.   Come along to our free information seminar or request a free consultation to discuss your personal situation.  Call Catherine on 02 6162 4546


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