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Rental income from property in SMSF tax free?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Mark Laszczuk, 21st Aug, 2008.

  1. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    One for the accountants. I did a bit of searching on Google, but didn't find what I wanted. Scenario is such:

    - friend (over 60) has super in retail fund
    - is thinking of transferring to SMSF
    - SMSF then buys a few residential investment properties
    - Idea is to live off the rents

    Question: Is the rent from the I.P.s tax free? Would the rent be considered a pension if the rent is paid to the SMSF, which then provides an income stream to said friend?

    I know there are a bunch of other issues that need to be taken into consideration and blah blah, all I'm looking for at this stage is an answer to the above.

    Mark
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi Mark,

    Taking it back to the basics...(Regardless of smsf, retail or industry funds.)

    Question: Is the rent from the I.P.s tax free? In an Allocated Pension/drawdown phase income and growth is tax free if it is a SIS complying fund Would the rent be considered a pension if the rent is paid to the SMSF The rent would be considered income to the fund which is tax free in a complying allocated pension/drawdown phase, the super/pension fund then has to comply with legislation in relation to paying out a minimum amount (and possibly maximum amount), which then provides an income stream to said friend? Not so sure about the last one, as it is supposed to be for the members benefit not their friend, they could potentially open a joint bank account to receive the funds and then the friend would have access to the funds...

    Cheers,

    Dan

    PS The above is general information, before making a superannuation or allocated pension decision speak to your FPA registered Financial Planner. If it is for a Self Managed Super Fund, speak to your SMSF specialist.
     
  3. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Thanks for that Dan, much appreciated.

    Mark
     
  4. Billv

    Billv Getting there

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    Mark

    Property in SMSF is a great idea and even more so for someone over 60 years of age because if he didn't put the rents in his super he would have to pay income tax.

    Is he going to stop working all together?
    In some cases partial retirement could be a better option.

    I am thinking that when I get to that age if I I have money left over in my SMSF and some work which will give me the ability to borrow I could gear to a certain extend and make my money work harder.

    Cheers
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    No worries Mark...
    I hate the mouthful "Non-assessable non-exempt" income, I remember it as NANE...

    Cheers,

    Dan
     
  6. DaveA

    DaveA Well-Known Member

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    most properties run at a loss anyway (negative gearing) so unless you have a low LVR then the tax free status doesnt really help in this situation....

    the only big plus is the free capital growth value
     
  7. Sacko

    Sacko Well-Known Member

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    I didn't think you could borrow within a SMSF (apart from warrants and interally geared funds), therefore as there's no gearing either + or -, or have I got the wrong end of the stick???
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The rules changed just recently to allow gearing within a fund - however, there are very strict conditions which must be met.
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    Also in the Pension phase it'll get messy once the recipient's minimum annual drawdown is higher than the rental income. Unless there are other income producing assets or cash to draw down on.