A few questions on SMSF and unit trusts

Hello Richard

Can you tell me where I can find more information on the new lending rules.

Also any information you want to share on the loans which are allowed would be most wlecome as what you have described in your post is what I would like to do (buy a commercial IP within a SMSF). Like Acrobat I have been looking into unit trusts for this. Any information on relative interest rates, conditions etc. would be most helpful as a starting point.

I read a post about warrents for this purpose on another forum though don't quite understand this yet. Is this what you are referring to?

Thank you
Elka

Hello Richard

Any idea what LVR is likely to be possible?

Cheers
Elka

Hi Richard can you explain in basic terms what this means for property investors.  Does that mean we can set up a SMSF and then borrow to purchase IP's.

thanks

Hi Post

Yes i think the market will be enormous for SMSF.

You wlll now be able to purchase a property whether it be residential / commercial in the name of your SMSF and borrow against the property with funds from your Bank. The Super Fund will be able to negative gear albeit at the marginal rate paid by the fund of 15% and then once the loan is repaid or the property is positvely geared the fund will only pay Tax at 15% on the profit. If this does not occur until such time as the fund is in Pension stage then no tax will be payable.

The fund will be able to do development (as long as this is within the Deed objectives and it is not deemed the fund is carrying on a business.

If you think you have 15 years to go before you will retire then the loan could be geared accordingly.

Remember when you sell the property asset in the SMSF if you are entitled to claim the concessional CGT you will only pay Tax at 10% on any profit made. 

Pos, super funds can't borrow they must invest so as not to put the funds at risk. SMSF Property is achieved through a JV with yourself ie 50/50 etc but the borrowed portion is yours not that contained within the fund. Generally speaking, you cannot put residential property into the fund – it must be a commercial proposition eg retail ($50k won't buy much on St Georges Terrace), serviced office, warehouse units or entire buildings eg block of 4+ units.

Most advisers will say that you need $100-200k + to start a smsf as the annual costs of compliance & audit exceed $1.5-2k minimum (which would be 4% of your fund) – even the most inefficient public offer fund would charge only 2% for its management fees. On this basis alone it would be unwise to start your own fund (talk to your accountant/adviser and let them talk you into/out of it).  Unless you are in a position to contribute say $150k or $450k over 3 years (in a lump sum) into the fund, you will have insufficient resources within the fund for investments (its ungeared share of the property).

Having said all of that, funds are allowed to borrow indirectly, they achieve this buy investing in geared funds eg property trusts, warrants etc which increase the exposure to an asset – the funds have the borrowings not the smsf but this does not achieve your goal of direct investment in a property within your fund.

Hi all,

It seems that this approach is well suited to IP's where the yield is high and CG is high, but the expenses are minimal. While you only pay 15% on the upside, you can only claim 15% on the expenses too. Since many CF+ IP's at personal tax rates are only CF+ because of the depreciation, many of these will no longer be CF+ on a tax rate of 15%. It's pretty tough to find such an IP unless you don't have to borrow, which negates the whole discussion.

I think that the main point of using a strategy such as this is to leverage your super funds, not as a form of tax minimisation. Accessing super might be a quicker way to kick start a property investment portfolio than saving up a deposit or paying down personal debt to get some equity.

The other advantage might be to get your super funds out of the hands of some bozo funds manager. [My personal quest is to reduce the number of idiots between myself and my investments to just one idiot – me!]

Daedalus