New rules allowing Self Managed Super Funds to borrow has revolutionised the investment opportunities available to Super Funds, particularly in regards to Real Estate investment opportunities. But the best news is that the cost of setting the necessary structures up is now much cheaper and user friendly!
Until recently Self Managed Superannuation Funds (SMSFs) have not been allowed to borrow money to purchase assets. This has severely restricted the Funds ability to grow its asset base. Of course SMSFs have always been able to invest in property, but with property values as they are, this option was limited due to insufficient money in the Fund and the inability to borrow.
Outside of Super, Australians have typically used property ownership as a key plank in their wealth accumulation plans. Generally, this has involved borrowing money and in most cases undertaking what is referred to as “negative gearing”.
Now, those same opportunities are available to SMSFs.
WHY USE SUPERANNUATION?
Superannuation was created as a vehicle to accumulate wealth to provide for the retirement of members. The government actively encourages this form of retirement saving by providing significant tax concessions for superannuation. Indeed, Super is one of the last remaining tax minimisation strategies available to Australian taxpayers. Receiving a tax deduction for contributing to Super and then having the earnings on those contributions taxed at a concessional rate has been a boon for those able to maximise their contributions.
However, the rules governing the activities of a superannuation fund are quite restrictive, especially regarding what you can invest in and the ability of a fund to borrow to buy assets. The purpose of these governing rules was to ensure that superannuation was used to save for retirement. Any activities that were viewed as putting the assets of the fund at risk were discouraged, and that included borrowing.
In 2007 the government decided to clarify the rules and amended the law to allow superannuation funds to borrow within strict guidelines. The reality of these changes however was much broader than initially expected, resulting in the opportunities available today.
NEWSFLASH
The news gets better and better. A recent draft ruling by the Australian Tax Office, effectively allows a SMSF to not only borrow, but also to invest in “off the plan” property purchases.
BUT WAIT…….THERE’S MORE!
The tax advantages of owning assets in superannuation can be unparalleled. In addition to being able to obtain similar negative gearing benefits to owning the property in your own name any earnings or profit that the superannuation fund makes will only be taxed at 15%.
With proper planning and in the right circumstances, it is possible to pay no tax on any super fund earnings including no capital gains tax upon the sale of the property. In the context of investment properties it is difficult to find this tax concession in any other tax structure.
Whilst the concept an SMSF borrowing to invest in property may sound complex, once it is up and running they are relatively straight forward.
If you require any further information on Self Managed Superannuation Funds or these borrowing arrangements please contact Stephen Hodgkinson of Gold Group Consulting on 07 5532 2855 or stephen.hodgkinson@gold-group.com.au
Disclaimer
This article is for use of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional advice. No responsibility for loss occasioned to any persons or organisations acting on or refraining from action as a result of any information or material in this article will be accepted. Please ensure you contact us to discuss your particular circumstances and how the information provided applies to your situation
