I am very new to this.
Have recently set up my own Pty Ltd as a medical practitioner. I am 35 yo and currently have 60K in super (FSS).
I am considering transferring this to a SMSF and borrowing up to 350K for a commercial office property for my business as a medical suite.Firstly, is this legal? (I have been told you can now borrow against SMSF for this purpose and been told I may not need 25-30% deposit for this)
Secondly, does this make financial sense? (as i said I am very new to this!!)
Any other suggestions/opinions appreciated.
Mr Markie
I know that the laws relating to smsf borrowing have changed thus allowing the fund to borrow (not sure of the ins and outs but your accountant can advise). As for rolling over your super into your own fund, should not be an issue as long as your fund is a complying fund (you will need to provide this information to the trustee of your current fund in order to roll over).
Generally it does make sense to own property within your own fund – firstly the rent paid by you to your fund is not lost to another party (landlord), rent essentially goes back to you (at the end of the day) in the form of improved balance on your super and possibility of capital gain if the property is sold – with possible cgt concessions available.
Hi Mr M
Yes you are now able to borrow in your SMSF to purchase both residential and commercial property and subject to normal commercial arrangements are able to lease the commercial property from your fund. (Please note this is not the case with residential property).
In saying this for a commercial lend you are limited to circa 70% lvr meaning you still need to come up with the 30% balance plus acqusition costs (Some lenders will max out the loan at 66% for a commercial security).
Certainly makes financial sense and I do just that in my SMSF.
Richard Taylor | Australia's leading private lender
Hi Mr Markie,
You might want to check it out – but I was told recently that the few lenders that lend to super funds, will only lend if the super fund alone is able to service the loan. This requirement alone knocks out a lot of deals, as most don’t have the income to service.Cheers,Mike
Mike in the case of a Commercial property then as long as the yield is sufficient you will be ok from a servicing perspective.
It is not serviceability but lvr will be an issue here.
Richard Taylor | Australia's leading private lender
Hi, there might be a way around it.
Apparently, you can now borrow as an individual and lend it to your smsf. The rent [which your business pays] is used to pay the interest on the loan.
If it's an undeducted contribution to smsf, the interest is probably not tax deductible.
You might also be in a position to 'salary sacrifice' a large portion of your income to get the tax benefit. This can be very significant.
It all depends on your financial position and your serviceability. Worth looking into.
KY
KY
Why would the contrubution be undeducted ?
Unless Mr M has made the maximum contribution for the year it wouldnt be.
Richard Taylor | Australia's leading private lender
kum yin lau wrote:Hi, there might be a way around it.Apparently, you can now borrow as an individual and lend it to your smsf. The rent [which your business pays] is used to pay the interest on the loan.
If it's an undeducted contribution to smsf, the interest is probably not tax deductible.
You might also be in a position to 'salary sacrifice' a large portion of your income to get the tax benefit. This can be very significant.
It all depends on your financial position and your serviceability. Worth looking into.
KY
There are a few problems with this. One, the borrowing has to be non-recourse, so the individual would not be able to use the business premises as security, if it is to be owned by the SMSF.
Two, there are issues with related party transactions. If you lend to your SMSF, the SMSF has borrowed from you, a related party. I still think this is not allowed in an SMSF.
The only way you could do this is if the individual borrowed, then made a contribution to the super fund. The problem here is the majority of the contribution would be non-deductible, and NONE of the interest would be deductible. This would be the WORST way to do it.
My advice is go and see an accountant or lawyer who specialises in SMSF's, who can set up the SMSF and the required borrowing correctly for you, if you decide to go ahead. There are severe penalties for getting it wrong.
Mr M
There are potentially two ways in which to finance the purchase;
Assuming you have equity in your own name borrow the funds personally against your own assets and then on lend to your SMSF in terms of the instalment warrants lending legislation. The loan to the SMSF would have to be non-recourse and all interest would be deductible. Here the structure and documentation is very important and you should see an experienced accountant to ensure that it is done correctly.
Secondly the SMSF borrows directly and as Richard says the LVR is generally an issue however as a medico there is one lender that will do SMSF lending up to 90% for doctors if required. They also do up to 100% on home loans for doctors. Happy to provide details via email if you like.
Hi Mike
The Anz Medico package is still with us and the loan is not mortgage insured but i think you may find the 100% loan for Doc has been withdrawn.
Richard Taylor | Australia's leading private lender
Hi Richard
Agree with you there, some mainstream lenders medico packages still exist (ANZ/Westpac etc) but most have been pulled back in the current economic cliamte however on a deal by deal basis there are still a few other players out there especially when medico's & SMSF is concerned.
Rates terms and conditons obviously apply however for some it's a viable option worth considering.
Is it safer to loan it to medico?
Does any one know about the lending rates? Would it be lower than commercial loan?god_of_money wrote:Is it safer to loan it to medico?
Does any one know about the lending rates? Would it be lower than commercial loan?Obviously some lenders think its safer although with higher LVR's come higher interest rates eg 90% LVR on medico premises current variable rate would be 8.3%pa.
Good topic.
What are the tax implications of such an arrangement? CGT, income tax etc…
The SMSF would obviously be able to claim deductions? But, what about Mr Markie's rental expense, is that deductible also?
GFC2007 wrote:But, what about Mr Markie's rental expense, is that deductible also?As the medical practice is renting the suite from the SMSF (which is a different entity to the medical centre), then the rent should be a legitimate expense of the practice.
As for the rest, the asset sits inside the super fund and would be taxed at the MRT of the superfund with the fund's expenses going against the income.
as a side note, you should also look (your accountant should be steering your this way) at a service trust (I think that's what it's called)
Hi Dr Markie
From the financial gain perspective, perhaps you should run all those scenarios by your personal financial expert while also considering your exit strategy.
Will you be staying there until you retire ?
Will your practice grow and include more medicos ?
In the future, can you on-sell the practice or lease or freehold to another practitioner or investor ?
If not, and you plan to move out of premises you own freehold, you'll be trying to sell commercial premises without a tenant or rent income, which affects the value.
Depending on how many medicos the area needs or will support, you might consider early planning for the extra space in your premises and business infrastructure to allow for future growth.
Good luck Doc
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
Mr Markie,
How did your SMSF purchase turn out ???
O
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