Hi All
A year ago our accountant (no longer and shortly to be sued) advised us to borrow money $350,000, put it into our self managed super fund, then buy an investment house in the name of the super fund. He failed to tell us that if we personally borrowed the money and put it into a SMSF then sold the house the proceeds and the original borrowings must all go back into the fund leaving the original borrowing still to be paid off. The house has just been completed. We cannot use the rent if we tenanted it to pay down the loan as any proceeds must go back to the super fund.
This has of course has put us into a hell of a position. Not able to sell the house or use rent to repay the debt. Worried that if we can't repay the debt because we lose our jobs, or become sick then our residence, which we own outright, would be taken by the bank to pay down our debt. Unfortunately super funds cannot borrow money. Nor can we borrow any more money because our residence is 80% LVR committed to this Super loan, nor can we leverage against the house in the fund as super funds cannot borrow money. My wife and I are 58 which means we have to wait 2 years before we can consider getting any money from the fund, which means retiring which I do not want to do.
So has any one any bright ideas how we can start a property portfolio when we cannot get past the first hurdle!!??
Sell the house and start a pension from your smsf while you are still working. the pension would be used towards your interest payments. Get some professional advice on setting this up
At 58 the Pension would be taxable at your highest marginal rate so not necessarily the way to go.
Richard Taylor | Australia's leading private lender
Ouch!! What a mess!!
What you've done is borrow funds to make a super contribution, rather than borrow for an IP. Normally such a strategy would only be used if you operated a business through a company/trust etc. and then borrowed funds to make a super contribution which would be tax deductible. How was this $350K treated when paid into the S'fund?
My advice would be to seek the advice of a new Accountant, someone with superfund experience.Hi Richard,
I disagree that at age 58 the pension is taxed at the highest marginal rate.
If the trust deed allows they could take a transition to retirement pension.
But I question what security was offerred for the loan? Is there another property involved? And can this be sold?
Regards,
John Cook
DIY Investing Pty Ltd
http://www.diyinvesting.com.auHello John
On reading the original post by websearch1161 it seems that he used his PPOR as security for the loan. He did own this house outright but now has an 80% LVR loan on it which was used to finance the IP within his super fund.
Can you explain a little more about transition to retirement pensions please.
What can you take out, for how long and what are the tax implications?Thank you
ElkaHi Elka,
Since July 2005 the government has allowed people to access their superannuation if they have reached their preservation age without the need to retire or otherwise stop working. The superannuation must be taken in the form of an uncommutable pension or annuity.
The thinking behind the transition to retirement pensions was to allow people to work part time without too much loss of income.
There are income tax concessions on the pension income including the 15% tax offset on a portion of the income. Some pension income may be tax free but it depends on individual circumstances. Please note this is a generalisation only as superannuation can be very complex.
Regards,
John Cook
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