BAN ON SMSF GEARING

2 questions:

1. Any idea on Labors proposed Jan 2020 ban on LRBA - limited recourse borrowing in super. Is it likely Jan 1 2020 or Jan 31 2020

I personally feel 6 months is a very short time to remove this as many people have been patiently building a super fund balance with the aim of buying an income generating property to fund their retirement and gearing let’s them acquire a better quality asset.

resi has appalling yields and cashflow issues crop up with land tax and maintainence... and end of franking credits will destroy the attractiveness of many dividend paying shares in a SMSF IMO.

Gearing commercial R/E seems the best game in town.

Any chance it could not pass as legislation ?

2. The act of trustees lending money to a SMSF to help
Them acquire Geared or ungeared assets. I think it’s 5.8% as a commercial rate of interest .. helps you bridge any 30% deposit or stamp duty shortfalls .... Is that being phased out as well?

 

Curious to hear other peoples opinions, but personally I'd stay away.
This will leave an absence of competition in the market and make it even more botique , which will only spell bad things.

 

But the
- Tax Free nature of the income stream
- garanteed Capital growth if you have continuing low interest rate environments and annual 3-4% increases
- ability to increase leverage and control a bigger asset base in a credit constrained era

Makes SMSF Gearing a very useful tool I feel. How on earth do u generate 150-200k NETT pa Tax Free with resi properties? Shares are ok for small amounts but as your asset base increases, you need somewhere lumpy to store wealth.

I have run numbers as u can get about 8-9% cash on cash tax free with fairly good degree of capital security

The income truly paydowns the asset + the tenant foots repairs and gives you a big juicy bank garantee + the asset generates increasing inflation fighting cashflow Yearly. The only downsides are the fact smsf borrowing is starting from an expensive base already and there is a long term risk of interest rate rises crushing your free cashflow and yield expansion compressing the value of these childcare, fuel, and medical centre properties .

 

I didn't see anything about LRBA ban dates? Jan 2020 is for NG and CGT changes. The proposed changes may or may not pass.

Resi can work in SMSF, just like a commercial property can. A commercial property leased back to your business is the best game in town but not everyone has their own business.

If you are talking about related party loans then they are considered LRBA as well so they'll likely go with the ban.

geared unit trusts and other strategies exist but are not for everyone.