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Self Managed Super Funds (SMSF)

INVESTING IN PROPERTY THROUGH SELF MANAGED SUPER FUNDS

Background Information
September 2007 stands out as an exciting milestone for Australian Investors. Legislation changed to allow self managed super funds to borrow to buy property. Smart investors are taking advantage of the clear benefits of this strategy, allowing them to build wealth faster in super through property.

This strategy allows you to:

1. Achieve up to 35% better after tax returns over 20 years compared to traditional borrowing outside super.
2. Use before tax income to pay off a mortgage on an investment property.
3. Utilise traditional gearing strategies to generate tax-effective income.
4. Defer capital gains until retirement at which stage they become tax free (subject to legislation).
5. Take the risk of cash flow stress out of buying investment property.
6. Achieve asset protection from commercial and Bankruptcy Acts subject of course to anti avoidance rules.
7. Take control of your retirement savings and diversify your superannuation portfolio to reduce the overall volatility and risk associated with a traditional superannuation fund.

The above advantages mean that as an investor you can purchase investment property in your super fund, borrow against it up to 80% and you may not have to put your hand in your pocket for even one cent for either the purchase or ongoing costs.

Investing in direct property in super is slightly different to outside super. Following are some of the main do’s and don’ts associated with this strategy.

Better Mortgage & Financial Services SMSF SOLUTION

WHAT CAN I DO
 
• Purchase residential investment property from an arms length vendor.
• Purchase business property which you can hold as an investment or occupy as an owner occupied business premises.
• Sell / Transfer commercial property already owned to the super fund and release cash that you would otherwise not have been able to access.
• Purchase the property you would like to retire to, lease it out now and sell it to yourself when you retire. This provides you with many years of capital growth that you may not otherwise have been able to take advantage of.

WHAT CAN’T I DO

• Hold owner occupied residential property in your super fund
• Use property in your super fund as a holiday house for your family to stay in.
• Transfer residential property already owned by a related party into your SMSF.
• Redraw loan facilities in your super fund.

Disclaimer: This document is not financial advice. Clients should seek advice relevant to their own personal financial circumstances. There is a better way.


SELF MANAGED SUPER FUND VS. INSTITUTIONAL / INDUSTRY FUND

Two major aspects to consider when you are thinking of whether to keep your money in an institutional or industry fund or set up your own self managed super fund are the different features and controls you may or may not have and also the differences in returns you can expect to achieve.

Features and Controls of each type of super fund are as follows:

Self Managed Super Funds

• You have total control over how your money is invested.
• You can invest across all asset classes and are not restricted to investing in share and bond markets.
• You can make your own decisions as to when and how you invest.
• When you reach retirement, if you had an industry or institutional fund you would have to cash out all of your investments and realise capital gains and any losses in place at that time before you start a pension. In a self managed super fund you do not have to cash out and can keep your investments in place when you start a pension, subject to liquidity of course.
• You can decide when to realise capital gains and therefore control how much tax you pay and when you pay it.
• You can put insurances in place which are more appropriate for your individual requirements and which are paid by the super fund.
• You (and your accountant) can manage your overall SMSF tax position to ensure that you pay minimum tax on your retirement savings.

Institutional Super Funds

• You have little or no control over how your money is invested. This most influence you can have is to tell the fund to invest in a growth, balanced or defensive share portfolio.
• When you reach retirement you have to cash out your investments to roll over into a pension product thereby realising capital gains and losses in place at the time.
• You have no control over the timing of your investments.
• You have no control over the timing of realising capital gains.
• You do not have control over the insurances which are in place through these funds.
• You do not have the advantage of being able to manage the annual tax position for your retirement savings.

The Importance Of Getting The Right Property

Simply setting up an SMSF and investing in property, isn’t necessarily going to get you the retirement income you are after. It is essential that you invest in a quality asset with healthy yields and strong potential for growth.
Did you know that if you invest in a $400,000 property for 20 years that grows at 8% pa instead of 7% pa you will actually be $316,509.07 better off - proving that 1% makes a BIG difference!
Selecting the right property is key to the BMFS SMSF solution.