Just looking for validation of my understanding/thinking here:
ASSUMPTION: If one had additional cash available (post tax, so salary sac not in scope here), and assuming you did NOT need to potentially access it until after retirement age, and you’d be with super non-concessional contribution caps, then
QUESTION: In general you would be better off putting this into super rather than putting it against your rental property loan (or in it’s offset account) on the basis:
– Super: Growth would not be taxed (e.g. 9% if super fund was making 9 %)
– Rental Loan: Saving would be: LoanIR * (1 – IncomeTaxBracket), let say for example:
e.g. 5% * (1 – 37%) = 3.15% [as you get negative gearing benefit]RESULT: Better to invest in super for this example and get 9% than put on rental property loan and get 3.15% benefit.
Am I on the right track here? Am I missing something?
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This topic was modified 7 years, 5 months ago by
mixedup. Reason: added "offset account" clarification
what about the leverage outside of super?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi TerryW
– can I ask if you agreed with my thinking in the original post?
– Re leverage outside, if you got 9% somewhere outside super then this would be taxed hence dropping the effective gain below this => super would still be better – is my logic reasonable here?There is a lot to consider besides tax.
Some are:
Access to funds – early retirement
Accessing equity and further investment and compounding – with no CGT tax until the sale.
With super the tax rate is 15% with limited opportunities to reduce this, outside of super there is a potential to reduce tax to 0%
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
With super the tax rate is 15%
so I think I’ve misunderstood super – so the interest the money makes in super, during the accumulation phase, is still taxed and at 15% right?
Yes
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks – although in my little example
– Rental Loan: effective savings 3.15%
– Super: not 9% but 7.65% (which is still quite a bit better)
– Also re Non-Super Investment: to get an equivalent of 7.65% after tax you need to find something ~12% return (noting the 37% tax bracket)So Super seems to be still the safest bet, but all revolving around whether you can afford to lock away the “extra money” until preservation age right?
I still don’t see you factoring in the ability to borrow against assets outside of super.
Superfunds cannot borrow, with one exception – to acquire an asset. Any equity built up cannot be borrowed against.Outside of super it can be.
So a equity increase of $200,000 side super may equate to $170,000 after tax. That $170k could only be used to acqquire an asset worth $170,000 – if sold. If not sold that is $200,000 returning say 10% pa.
A $200,000 return outside of super may be taxed at 47%- say $100,000 post tax, but this $100,000 could then be used to buy a $1mil property returning 10% pa. If a property had grown by $200,000 you could also not sell but just borrow against this – say taking out $160,000 and buying the same amount of property or a lower amount of leveraged shares.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
thanks Terry understood… so perhaps if I updated my findings along the lines of:
– best to utilise “spare cash” to invest outside super to leverage this
– however if one was too risk adverse or lazy to do this (e.g. another property purchase), and you do not need to access it until retirement, then putting into super would be better than just leaving it your existing rental property offset account to save interest-
This topic was modified 7 years, 5 months ago by
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