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SMSF help please

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Sissy, 19th Jul, 2011.

  1. Sissy

    Sissy New Member

    Joined:
    19th Jul, 2011
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    Location:
    brisbane
    Hi,

    I am in need of some expert advice :eek:. I have been told that SMSF can now borrow money to invest in property.

    My husband (38) and myself (33) have a combined super of $188,000. We both are working.

    I am trying to work out the tax benefits/detriments of using our super to buy an investment property. If we were to borrow say $450,000 and fund the purchase of a property of approx $600,000 (plus acquisition costs), a couple of questions arise:-

    1. How would the rental income be treated by the SMSF. Would it be taxed?

    2. how would we fund the difference between the rent we received and the loan repayments.

    3. Can we put any new super contributions towards this? Can we use our own income to meet this?

    We currently have an investment property in our names, and I am thinking we could move the property into the SMSF. Not sure whether there is any benefit to doing this. The investment property is currently exactly neutrally geared with the rent covereing the loan repayments, rate and insurance (due to a family arrangement).

    Would love some advice as I am not too sure the precise way to go.

    thanks very much!

    Sissy
     
  2. Billv

    Billv Getting there

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    Sydney, NSW
    Yes it will be taxed but the SMSF will also have to pay the interest on the loan so it will only pay tax if the rent exceeds the interest payment

    With your employer contributions or you can salary sacrifice


    see answer for 2 above, you can also contribute to super with after tax $ if you want

    If your investment is a residential property the transfer isn't allowed
     
  3. MikeF

    MikeF Member

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    Location:
    Sydney, NSW
    Hi Sissy

    To borrow $450K via a SMSF borrowing and assumming $520 pw rental (4.5% yield) you will need to be contributing into super somewhere around $27K pa.

    Whilst there are a couple SMSF lenders that will go to 80% most will only go as high as 70% - 72% LVR.

    You also also need to take into consideration SMSF set up costs as well as ongoing costs such as the annual audit, a SMSF LOan interest rate of around 7.8% pa and loan fees/costs of around $6K+
     
  4. Superman

    Superman Well-Known Member

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    Location:
    Gold Coast, QLD
    Hi Sissy,

    MikeF and Billv have both covered of your questions.

    You really need to look at the cash flow.

    Ideally, any property you buy within a SMSF needs to be able to generate enough rental income to cover all expenses and loan costs. Any contributions that hit the SMSF (employer SGC 9%, salary sacrifice etc) should be used for further investments - NOT making up the shortfall on the loan repayments. That is the key to long-term wealth building.

    Becuase you guys are young, a strategy I use with my younger SMSF clients is a second 'member-financed' limited recourse loan. This enables you to inject some additional capital to the SMSF and redraw it at a later date without going astray of any SMSF or tax rules.

    There is a lot of great information around, try a Google (AU) search for "buy property with super" or check the links in my signature.

    Any questions please throw them out there.

    SM
     
  5. Blueskies

    Blueskies Member

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    23rd Jul, 2011
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    Location:
    NSW
    Hi Sissy,
    If the asset is going to be disposed of prior to meeting preservation age (60 for you and your partner) you my wish to consider CGT implications of assets held with an SMSF against assets held outside of the the superannuation environment.

    Regards

    Note: this is general advice only and does not take into account your personal needs, objectives or circumstances. You should speak to a licensed tax professional or financial adviser.
     
  6. Superman

    Superman Well-Known Member

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    Location:
    Gold Coast, QLD
    @Blueskies and @Sissy

    I read an article that gave a fairly decent comparsion between buying an investment property in your personal name(s) compared to a correctly structured purchase within a SMSF.

    [​IMG]

    The above comparison shows the SMSF with it's nose infront - which is mainly due to the differences in tax over the long-term.

    It really comes down to the specific situation of the individual and the property.

    SM
     
  7. Sissy

    Sissy New Member

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    19th Jul, 2011
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    Location:
    brisbane
    thank you!

    Thank you everyone for your really helpful replies. I will go away and do a bit more research into it.

    Sissy