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SMSFand property

Discussion in 'Superannuation, SMSF & Personal Insurance' started by pestgirl, 26th May, 2010.

  1. pestgirl

    pestgirl SMSF novice

    Joined:
    28th Apr, 2009
    Posts:
    10
    Location:
    Windsor nsw
    Hi all
    still dabbling around the edges of purchasing a property with our SMSF (making sure I have alll my info) and I have question that I was wondering if you had an answer to??
    We are looking at property around the $350K mark. Maybe more depending on the potential rent acheivable.

    I am leaning towards a new (ish) unit in an area with lots of growth potential and infastructure both happening and planned.

    My question is would it be better to buy a new unit (which obviously has strata fees as an added expense) or would a house further out be a better long term strategy as the stats have houses growing at a higher rate than units??

    I will look forward to your replies
    Cheers
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    I'd buy a house. The depreciation benefits from a new(ish) unit will be wasted in your smsf.

    Cheers
    N
     
  3. pestgirl

    pestgirl SMSF novice

    Joined:
    28th Apr, 2009
    Posts:
    10
    Location:
    Windsor nsw
    Thanks Nigel for your reply.

    I guess then we couldn't sell our existing IP (about 15 years old) to our super fund and purchase the new unit for ourselves to utilise the depreciation???

    I guess the costs associated with the sale would outweigh the benefits of the depreciation??? Sorry - just thinking out loud!!! I haven't got a clue as to the costs that are associated with this .... just a few scenarios that I am thinking through!!

    I'm not sure about the house though, rather than the unit - only because the the houses aren't in "nice" areas..... so the type of tenant I would attract and the rent I would achieve may not be as good. IMHO

    Anyway thanks for your input
    Cheers
     
  4. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Hi there

    Houses vs units - both have merits but don't make the mistake of simply purchasing new for the depreciation benefits. It all comes back to haunt when you sell, after all.

    Have you spoken to someone about purchasing via a SMSF? It is complex so you need to really know what you're doing and the risks, limitations etc. I'd suggest speaking to your accountant first and going from there.
     
  5. MikeF

    MikeF Member

    Joined:
    1st Feb, 2008
    Posts:
    12
    Location:
    Sydney, NSW
    Hi Pestgirl

    Your guess is correct, your SMSF can't purchase your existing IP (unless its deemed to be "business real property") as you would be in breach of the related party rules within the relevant SIS Act legislation.

    As Jacque stated, best see your accountant first.
     
  6. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Pestgirl

    You have received some good responses to your questions.

    I kinda disagree with Nigel's comment regarding depreciation deductions being wasted within an SMSF. I see where he is coming from - typically individual marginal tax rates for property investors are higher than the 15% tax within a SMSF, and thus greater tax benefit outside of super.

    However, if you salary sacrifice you can get the best of both worlds: You save tax personally through lower taxable income, and the extra contribution income flowing into the SMSF gets absorbed by all the depreciation deductions within the SMSF.

    There have been a few good posts on InvestEd to help you - especially:
    www.invested.com.au/6/our-first-smsf-purchase-step-step-36783/
    from Billv.

    Feel free to throw any questions at us.

    SM :)
     
  7. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    That's a difficult decision.
    For me it would depend on what other assets I have outside super because I'd like to diversify.
    With the new unit, you'll get higher rent plus higher depreciation. If you did go for a house try to compensate by finding something with higher yields or with development potential.
    Even putting a granny flat on the block can make a big difference to your bottom line