Investing property in your Super can be a great way to build your Retirement Savings in Super…. Because of the ability to leverage using opm (other people’s money)
SMSF Loans
You can now borrow to acquire residential, commercial or industrial property, within your self-managed super funds”.
”The Power of Leverage … why would you borrow to invest in property with super?”
For every $20,000 of super , you can buy $100,000 worth of property
Leverage is using other peoples money when you are investing.
Here is a hypothetical scenario of how your investment can work (thanks to ProperT)
- Property $650,000
- 20% deposit $130,000 invested
- Capital Growth @ 5% pa = is on the full value of $650,000
- Rent Achieved is also on the full value of the $650,000 (assume rent covers interest and expenses )
- After 10 years your property could be worth $1m
- Rent will cover interest costs
- Your $130k will now be worth $480k
*simplistic helicopter example provided to merely outline the financial power of Leverage + Compounding Returns
TAX ADVANTAGES
These are things that an accountant or your financial planner can share with you - but some of the tax benefits include
- Capital gains tax
- Rental income tax
- Salary sacrifice tax
- Superannuation pension tax
- Writing off Depreciation against Super Contributions
Benefits of Investing in Property in your Self Managed Super Fund
Undoubtedly the greatest tax benefit associated with investing in property within a Self-Managed Super Fund (SMSF), is the potential Capital Gains tax Concession on capital growth.
As per the ATO web site : “If the property is sold while in accumulation phase after being held for more than 12 months, a 10 per cent tax rate applies. However, if that same property is sold after the super fund has converted to pension phase (in retirement), zero per cent tax applies.”
The longer you hold the property, the greater the likely capital gain, and the larger the tax benefit.
Rental income on properties owned by your super fund is also concessionally taxed. Another fantastic financial gain within your super. As with capital gains tax, in the pension phase, no tax will apply to rental investment income, and a flat 15 per cent will apply in accumulation phase. This is also extremely favorable when comparing neutrally or positively geared property, with rental income taxed up to 46.5 per cent, for property held in an individual’s name.
The Australian Tax Office allows individuals to make pre-tax salary-sacrifice contributions into super, paying 15 per cent contributions tax in super, whilst saving marginal tax in their own name. Which again could be up to 46.5 per cent. More after-tax dollars to invest, results in greater wealth being accumulated by you, and/or more personal debt to be repaid.
You may not be aware, that at age 55, workers (employees or the self-employed) can establish a “transition-to retirement, account-based pension”.
The benefits are twofold. First, in pension phase, as stated above, investments will be capital gains and rental income tax free. Secondly, pension payments made from super to an individual are also concessionally taxed and will be tax free from age 60.
Therefore, the typical transition-to-retirement financial strategy involves swapping higher taxed salary income, with lower taxed pension income, thereby allowing additional salary-sacrificed super contributions to be made.
This is not advice, ask your accountant/financial planner to explain. If you haven’t got one - let me know and I will refer you to the best ! (On Referron)
Your financial planner/accountant will explain how you can take advantage of this legislation and how Superannuation pension payments can be received, while working full-time or part-time.
Where to from here?
There is a process for property investment in SMSF
It is complex - and if done properly can be a game changer for your retirement . You need to have on your team
- a great accountant
- a great financial planner and
- the best mortgage broker - that’s me - https://www.bsifinance.com.au/
And of course , you will need to find the right property in the right place at the right time to maximise your growth potential
Feel free to call me and let’s see if this strategy can work for you ….. hopefully our chat will be part of your journey to financial freedom :$ )
