The growth in SMSF’s has been extraordinary with SMSF’s now accounting for $439 billion of Australia’s $1.5 trillion superannuation assets. (Source – APRA 2013) Australians have been changing to SMSFs for many reasons; including:
- SMSFs give you more control over your super.
- SMSFs provide greater investment flexibility and are a vehicle to implement tax-planning strategies that take advantage of tax concessions afforded to superannuation savings in Australia.
- SMSFs may cost less to operate than the fees charged by other superannuation fund providers.
If you choose to establish an SMSF for property investment purposes, you will need to seek the advice of a qualified financial advisor. The administration of an SMSF requires an additional time commitment from the trustee. Your financial advisor will ensure that you are aware of these responsibilities and compliance regulations in detail before you make any investment decisions.
Use your super as a deposit
One of the greatest opportunities for Self-Managed Super funds has been the recent change allowing SMSFs the ability to borrow money for the purchase of investment properties. Many Australians, preferring property as an investment, are now taking full advantage of the change and using their super as a deposit for an investment property. There are numerous advantages associated with buying property through your SMSF. The major benefits are:
- You have direct control over your super investments and a real understanding of where your money is invested.
- Buying property is an excellent way to reduce the volatility and overall risk on your retirement portfolio, often countering the volatility of share portfolios.
- Gearing is one of the most effective long-term wealth builders available. The fact that your SMSF can now borrow to buy property enables you to make use of this time-honoured strategy to increase your wealth.
- The fact that properties are held inside your SMSF means that you protect yourself from the impact of Capital Gains Tax (CGT) until retirement, at which time your gains will be tax free (if current legislation remains in force).
- Transactions are subject to a more favourable tax regime – your after tax returns are therefore likely to be much better. For example:
- Rental income from property in a SMSF will be taxed at 15%, compared with rates up to 46.5% including Medicare levy that a regular investor could be paying.
- In the pension phase, once you start to use your SMSF to provide for your pension, rental income from the property may be tax free.
- Assets held in a SMSF may, under normal circumstances, be protected against general debt recovery (this does not apply in the case of the loan with which the asset was purchased) and bankruptcy proceedings.
- The fact that you can transfer commercial property that you already own into your SMSF has the potential to unlock cash to invest in your business or in other assets. There may also be the option to use the funds to re-contribute to your SMSF (subject to individual limits).