Hi All, anyone familiar with the rules for using your super to buy investment properties? I have an opportunity to buy a waterfront unit before its placed on the market and am short of cash at the moment. Its not going to be +ve but I believe the capital gains will continue to be huge. Anyone have some creative solutions??? HG
HG
I’ve never tried to do it, but my understanding is that super funds can’t borrow to invest. So unless you have enough in the fund to buy outright it’s probably not an option.
Rod.
I believe that your Super will need to cover 100%
of the propery and purchuse value.The best thing to do is buy an IP under your SMSF
Unfortunately there are many laws that need to be followed. If you are in breach of these laws then you may be dissallowed the tax deductions and be taxed at 47%.You can’t gear with SMFS ergo you need cash to fund your property. If you have more than 5 memembers in your SMFS then you have alot of reporting requirements.
Alternatively, you can buy with a hybrid trust and have your smfs be a unit holder. CGT are good at only 10% if held > 12 months and income is only taxed at 15-30%.
Problems will arise if you exceed your RBLs though
Maybe your super fund could invest in a
unit trust which borrows to buy the
property using the super fund’s money as
the deposit.Talk to your accountant, there must be a
way.andy
i am in the process of doing this now. That is we have set up our own SMSF but because we cant buy the property outright we have also had to set up a Unit Trust.
The result is the property is purchased in the Unit trust name with we personally having to borrow the other 80% of the funds
this way we have been able to access our super funds and buy a positive geared property.
it has taken a few months to set all this up but once its done we aim to buy 2 or 3 properties for our super fund with @ 20% deposit from our super fund and we personnally borrow the rest and having a positive geared investment
Go for it
thanks for all the advice – will start to investigate setting something up. HG
I would seriously look into the super issue, and if possible get some professional advice. There are arms length and related party transaction laws that were brough in July 1999 that took the effect of stopping people from using unit trusts inside their superannuation funds. While many funds still continue to use this strategy, upon close inspection from the ATO, they will not pass compliance. The ATO also issed at the time grandfathering clauses giving people the time to wind down their investments, and also put a freeze of putting any more money in their unit trusts. Closes inspection of the SIS Act (Cth) may also reveal some other issues.
In addition to this, the ATO has issued a warning regarding superannuation funds investing into assets that have a security over them, such as a bank mortgage. While they didn’t come out and say you can’t do it, it is ATO speak to say, “we would prefer if you didn’t” meaning, you shouldn’t. Hope this helps – I’m available on [email protected] if you have an other questions.hgwells
I would be very careful about this type of structure. There are some accountants who do not understand the requirements. Based on your question there are several red flag issues. This type of structure if set up now has to be wound down by 2009. Although thats 6 years away you dont wont to be forced to have to sell property at the wrong time because the structure is wrong. You also need to look at the cost of set up and managing the structure and assess whether the potential tax saving are really worth it.
The Tax Office are vey active with super fund audits, home loan unit trusts and similar. Once they get a whiff you end up getting bogged down for a long time.
Also the unit trust must distribute any profit according to unitholders entitlements. That means your super fund must retain its share of any earnings or profits. You cannot use this to repay debt.
Be careful and make sure the advice is spot on
Regards
Steve
The topic ‘Buying Ip using your Super’ is closed to new replies.
