Property in SMSF again, can't decide.

Should the proposed Super changes become law the big issue is the lifetime non-concessional cap of $500K (and this is retrospective from 1 July 2007). That is, if you have already put more than $500K after tax contributions into Super no more is allowed. And the proposed annual $25K Concessional limit may make it hard to meet unexpected IP expenses etc. Of course if there is more than one member in the fund the limits will increase accordingly.

However when retired the tax free pension on offer from earnings off the $1.6 Mil is still an incredible option for avoiding tax. But a minimum 4% annual pension withdrawal applies.

Having read quite a few articles by experts in the industry since the 3 May Budget a theme that is coming through is that the "type" of asset one holds in pension mode will be more important than ever. Unlike Labor's Super policy that would have one paying 15% tax on earnings (including CG) over $75K the Coalition's policy only limits the starting "capital value" of the pension. Therefore in this situation numerous experts have suggested that having assets with strong "income" growth are a perfect fit. Yes wait for it, drum roll ............. And what would that asset be, fully franked dividend paying shares.

Ouch, ouch as he is immediately being slapped savagely for suggesting such a thing on a Property Forum.

PS: The above said this is all speculation at this stage. However regardless of who wins the election expect some nasty changes to Super as the GREENS will likely have the balance of power. And they hate anyone with more than a trivial balance in Super.

 

Had an interesting conversation with the ATO this week in regards to the non concessional contribution level in which they admitted they don't have a record of what each member has contributed so the chances of having an issue with excess contributions is unlikely.

With regards to the $1.6M Pension Fund limit all you do is have your high yielding assets (shares with franking credits etc) in the Pension Fund and your low level yielding assets such as cash etc in the separate Accumulation Fund.

Working with a number of clients who are looking at bed & breakfasting certain shares within their portfolio where they will have good capital growth (i.e CBA shares they bought for $4 which are now worth north of $70) in order to set the Pension fund up correctly come retirement.

Assuming the changes get up as initially stated will have very little affect on most retirees.

Cheers


Richard

 

ATO set to change historic data access process

It will be interesting. It depends on who you spoke to at the ATO. The data may be there but just needs a system in place to retrieve it?

Yes, a common theme coming through from advisors.

Just bloody hoping we're not in the middle of a raging Bull market at the time this kicks in with share values high and dividends low.

Would be grateful if you could expand on this please.

Would this be considered Wash Sales by the ATO?

Accountants, help please.

Yes, great for us already at that point but unfair on many who were financially strapped earlier on and hoping to build up there Super at a later stage of their life.

 

shares providing franking credits in super is quite powerful. I would say this is helpful to both retirees seeking income and even young stating out who can't commence SMSF due to low balance....in our case we r thinking of buying property in SMSF however due to low balance we may have to wait little longer...came across this article Maximising franking credits in SMSFs - Morningstar.com.au and got me thinking how about buying fully franked high yielding shares/etf in Super and boost income as much as we can so balance is built quickly to buy properties...

unfortunately, super we r with doesn't allow direct shares/etf buying and setting up SMSF just to apply above strategy seems little costly....

 

Can't help myself, the below is from the Thread on Peter Thornhill:
Peter Thornhill
----------------------------------------------------------------------------
Fear factor should start the hunting season - Cuffelinks

So imagine this strategy being used in a Super Fund compounding over a few decades. That $10 Mil outcome is without the franking credits being taken into account. Half the value of the franking credits would pay the 15% tax during the accumulation phase and the other half could be reinvested. So that $10 Mil is being understated by quite a bit even after paying tax in Super.

Of course the downfall of Super is the age you can access it. But whilst investing with leverage in IPs and/or other assets outside Super for potential early access / retirement (ie no age access restrictions) a modest ongoing investment in fully franked shares / Listed Funds inside Super could turn into an extraordinary income stream from retirement onward.

So an idea could be to own enough assets outside Super which could be used to support early retirement UNTIL you can access your Super. Then Super can be used to continue (or better) the lifestyle enjoyed during early retirement in the later years.

Therefore @S0805 given the above why would you want to sell your fully franked shares in Super to buy property? You could have the best of both worlds, easy use of leverage with IPs outside of Super AND Fully Franked Shares / Funds beautifully suited for inside Super. Plus you get the additional benefit of asset class diversification.

Not liscenced to give advice, general info only.

 

Hi @ellejay , me and wife are also planning to join SMSF and then purshase property. I have done some research and thinking to go with Esuperfund company. Bust happy to hear your suggestion too. We don't have so much in super , we have roughly 100K $ and planning to buy property for 300K $, may be in victoria. We live in NSW. I also fo7nd only CBA, Bank of Melbourne, st george and Macquarie bank only give loan for smsf property investment.

Hope to hear from you.

Thanks

 

Hi @Foxdan

Is it possible to get some idea on smsf please?

me and wife are also planning to join SMSF and then purshase property. I have done some research and thinking to go with Esuperfund company. Bust happy to hear your suggestion too. We don't have so much in super , we have roughly 100K $ and planning to buy property for 300K $, may be in victoria. We live in NSW. I also fo7nd only CBA, Bank of Melbourne, st george and Macquarie bank only give loan for smsf property investment.


Hope to hear from you.

Thanks

 

That is exactly what we did and it worked beautifully. Now living the dream.

 

If not planning to return to work then there will be no member contribution income via the SGC. So rental income of the SMSF property will be really important in demonstrating serviceability. Check with a broker what your proposed SMSF would likely be able to borrow and determine if that would enable the SMSF to acquire the kind of property you're after.

 

Funny, you said this. This is what we've planned. We are 32 yrs away from accessing super (that is if the goal post is not changed ). plan is to retire 12 yrs earlier than super age and currently building investments outside super to fund these yrs by investment properties, shares/etf portfolio and insurance bonds. Serviceability soon will become as issue and we could end up having 3 IPs outside super or may be one more. Insurance bonds are done focusing on global market only. Currently saving like mad to meet target on building 135K shares/etf portfolio (Aust market) by jun 2018 outside super and then let DRP and compounding do its magic from there on wards. Dividend income provided from shares and bonds will fund part income for 12 yrs.

We'll have option of paying the debt of on IPs or sitting on them after jun 18 and selling one to pay rest of. That's the moving goal. Part-time work is always the option.

once above is on track will utilize the franking credits to reduce the tax payable in super. Less tax = more money. This should boost our balance quickly. Not planning to sell shares/etf portfolio from super, i m just going to use franking credits to lower my tax payable in super. Once enough balance is built diversify by investing properties as much as we can. shares/etf will always be part of the portfolio as during those years of income will be key focus. once
hit the super age, sell IP's in super (hopefully still 10% CGT) and pay rest off and enjoy the rent and shares/ETF income to fund any gaps from above plan.

We've long decided building as much assets outside super using max leverage as we can given ho far we are from super age. There will be lot of changes coming to super in 30 yrs especially when definition of retrospective change is being altered . I believe Super will always be favorable tax environment but for us it's a fallback option and by starting early on this we'll build it better....

None of the above is advise....just sharing our plan.

 

Hi @Newfast
Sorry, I can't add to what others above have said. Still exploring options at the moment.

 

Sounds like a good plan S0805

 

Uuummmm, sounds like you might be right when the likes of Daniel Butler (DBA Lawyers) are saying the same thing.

Contribution cap process already hits hurdle

 

Hi @CosmicTrevor @Shady @JacM @Terry_w @RPI @ellejay @Greyghost and others who I might have forgotten to mention....

First and foremost I just wanna say big thanks to all the input and suggestions and experience you guys have shared.

I do believe deep down I knew 100K$ might not be enough that's why I started investigating further. As someone said I was cutting the numbers fine to achieve the property and also no fees for 3 years with Esuperfund also gave me boost.

But as numbers don't lie, i will be postponing this smsf property investment at this stage.

Our current Super is with first state super and returns aren't that great and i love property investment, that was the only thing which made me search abt smsf property investment. ...aim is to increase the super.

Yesterday I apent whole day couple of sunurbs of Melbourne doing inspections for an IP and i think I am going to stick with that instead of smsf property at this stage.

Once again this forum is very helpful and genuinely I am thankful to all of you.

Much appreciated.

Regards
Newfast

 

You're welcome @Newfast .

A few random points with respect to how quickly a person's super balance can rise:

• A person on say $100k is probably going to see around $9500 go in from the employer SGC contributions (9.5%) per year. From that comes 15% tax so you're left with 9500 x 0.85 = $8075. From that comes admin fees and insurance premiums. So presuming the current holdings in super don't drop or rise in value, a person on $100k would probably see a rise in balance of $7000 or thereabouts.
• Remember that the nominated investment option in your retail / industry super can have an impact on how quickly your balance can rise/fall. Investment options are for eg high risk, medium risk, low risk, fixed interest, Australian Shares, etc etc so it is worth having an awareness of the selections you have made in this regard.
• A SMSF can have up to four members. Husband and wife often team up in a SMSF. So the balance rises a bit quicker if the two of them are working and thus SGC contributions for two people are coming in.
• It is permissable to make additional pre-tax contributions to super via salary sacrifice which can be arranged via the payroll department. The annual caps (inclusive of the compulsory SGC component) depend on your age and are noted here under "Concessional Contributions caps" : https://www.ato.gov.au/printfriendly.aspx?url=/rates/key-superannuation-rates-and-thresholds/
• A SMSF that has not permitted itself to invest in property and using borrowed funds to do so cannot buy a property, so it's important to clearly communicate to whomever is setting up the SMSF that this is your intention, such that the SMSF Investment Strategy and Trust Deed can be built to allow for your intentions.
• A SMSF that has intention of buying a property doesn't necessarily have to do so on day one. I have seen some folks set up a SMSF and store its funds in a SMSF deposit for a year while building the balance to a sufficient level to buy a property.
• Lots of components in the mix as you can see, so it depends on lots of things... your age, your income, your investment intentions, etc etc etc.

 

Thanks @JacM , i will check with my super. If I am not mistaken these funds are half in low risk and half high risk. But again I will confirm.