- It's always the way….my accountant is off on holidays for a another week or so and I've woken up full of all these bright ideas and I've got nobody to bounce them off. I'm hoping I can land some feedback here.I'll put this all in it's simplest form:The home we live in is valued at $260,000, mortgage of $100,000. The mortgage is in both our names, the home is in Julie's name.We have an investment property valued at $180,000. Mortgage of $180,000. The mortgage is in both our names, but again the property is in Julie's name.I am the sole directory of my company. I am an employee for the company fulltime, Julie works part-time for the company and part-time elsewhere.We run our own Super Fund, it's in both our names.Ok, here goes…….1. Can our Super Fund buy Julie's house? The fund has enough cash to buy it outright. We would obviously no longer live there.2. Can my company buy the investment property from Julie? The company has enough cash to buy it outright.The net result of this would be:
Super fund now owns an investment property.
Company now owns an investment property.
We are mortgage free and have a good deposit for the next home we want to buy.
Does anyone see any big issues here, especially with the Super fund getting involved?Two other side issues that I've also considered:Can my company rent the Super funds' home from it, even for a short time, for us both to live in while we find somewhere new to live?Can the super fund buy the home from Julie for a much under valued price. (e.g. It's market value is $260,000, can the Super fund buy it for $160,000?)Hope this all makes sense. Any thoughts would be much appreciated.Thanks. Warren1. No your SMSF wont be able to buy your own property, there’s a “one arm length” rules restriction in place.
2. ( not 100% sure) But i thnk if your SMSF buy any another property; the fund is not able to rent the house back to the beneficiary ( they could have changed the rules too this?)
3. Your company can buy the property- but expect to pay stamp duty + CGT and the company wont have any CGT discounting when it sells etc…
4. The houses are cross securitized- so you need to make sure the property can hold it’s own value when you sell or off load one of them.
5. Who makes the higher income? sine the mortgages are in Julie’s name – shes the only one that can claim the expenses from the IPThe question is; what are you trying to achieve? minimize tax? improve cash flow to invest more etc??? be debt free?
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Michael has done an excellent job of answer your points but just to clarify on the only point he wasnt 100% sure.
1. No your SMSF cannot buy a residential property and you rent it from the fund irrespective of the purchase price / market value etc.
Course if the property was a Commercial property and the Company then rent it off the fund that is different.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Michael and Richard for the feedback and advice.
The end goal for us at this time is to put ourselves in a position where we are able to borrow to purchase a new home for ourselves to live in. We are thinking the purchase price would be capped at somewhere around 400k.
We want to keep our two existing properties somewhere in our portfolio, either in our own name, in the Company or in the SMSF, although it sounds like the SMSF is a no go!
As we currently have two mortgages, one for our own home and one for our investment property, my line of thinking was to pay them out using funds from the company and/or the super fund. That would leave us debt free and ready to borrow again.
Warren
Hi Warren
Nice idea but hate to say it wont work in SMSF.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
As Richard pointed out it won’t work in the SMSF as it can only acquire assets from a related party which are valued at a maximum of 5% of the total SMSF investment portfolio value.
As Michael pointed out you need to investigate the tax implications of the loan for the IP as you should maximise the tax effectiveness of the loan and any expenses and/or deductions that are available by having both the property and the loan in the name of the person in the highest income tax bracket.
Why would your company want to own a residential investment property? Is residential investment property a part of the business?
I would probably se up a seperate company and trust to purchase properties in if I were in your shoes, so if your existying company went bust there would be some level of protection for the property.
And also, why do you need to keep these particular properties? Would it be possible to purchase other, possibly better, properties in the SMSF and new trust or is there something special about these two properties that you own?
Cheers,
Luke
You must be logged in to reply to this topic. If you don't have an account, you can register here.
