SMSF to buy car space

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Terrychris, 13th Jan, 2017.

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  1. Terrychris

    Terrychris Well-Known Member

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    We dont have a SMSF section here, so hopefully this is ok to post here.

    I have approx $150,000 in my Super Fund, I was planning on changing it over to a Self Managed and buying a car space and renting it to myself or someone else.

    My questions are , anyone used this E Super fund?
    Was it easy to change over ?
    Did it cost a lot ?
    Any reccomendations I could use ?
     
  2. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Hi @Terrychris

    Due to the arms length transaction rule, you will not be able to rent a carspace owned by your SMSF to "yourself".

    Depending on whether the carspace is deemed residential or commercial:
    • You cannot rent residential property owned by your SMSF to yourself or a party related to yourself.
    • If it is deemed commercial property, you might be able to rent it to a company owned and controlled by yourself.
    I cannot imagine that an SMSF could get a loan from a lender to acquire a carspace, so it'd have to be paid for in cash, which removes the power of leverage. Not sure why you'd bother doing this. You could do better with your money I think.

    As to whether setting up a SMSF is what is best for you and whom would be the most appropriate provider to set it up is another matter altogether. However it would be best to decide what you intend to do with the money (and whether your intention is permitted, and whether it is best bang for buck) before going too far down this track.
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Do you think that this would be a good idea?
     
  4. Chilliblue

    Chilliblue Well-Known Member

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    Time to speak to a financial planner
     
  5. Terrychris

    Terrychris Well-Known Member

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    Yes probaly will go and see Terry
     
  6. Property Hoarder

    Property Hoarder Well-Known Member

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    With that type of investment E super may not take you on.

    You are very unlikely to be able to rent to yourself. You would need to show that it is business real property and I can not see it happening.
     
  7. Corey Batt

    Corey Batt Well-Known Member

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    I don't think Terry is a financial planner?

    ESuper is fairly restrictive in that they have their preferred lenders, products etc that you use - if you do not use them they will not assist in the setup/administration of that component.
    Basically they provide a dirt cheap option, but makes their money off the products you use through them thereafter via third parties. I'd rather have a comprehensive SMSF which costs marginally more but gives complete flexibility in product, investments, insurances.

    Get the right advice in setting this up, the penalties for being non-compliant is significant.
     
  8. bunkai

    bunkai Well-Known Member

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    Advertisement ?
     
  9. JohnPropChat

    JohnPropChat Well-Known Member

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    That may no longer be strictly true. I had a peek at their list of allowed investments a few weeks ago. Compared to 2 years ago they have expanded significantly. Pretty much allowing a wide range of investment classes/assets. Still a no-advice SMSF admin/return/audit only company for a very reasonable fee.

    May still need independent advice if you are are getting "creative" with your investments as you don't want to find out that your fund is non-compliant when an audit happens and it's too late by then.
     
  10. JohnPropChat

    JohnPropChat Well-Known Member

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    Just of of curiosity. Who is the right professional to get advice from - if an investment and how it is structured going to be compliant with SMSF rules? Let's say you already know what you want to invest in and an idea on how you want to do it - is a lawyer a better fit here?
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It depends on what advice you need.

    If structure then a lawyer, if it is financial advice such as should I set up a SMSF, should the SMSF invest in this then it would be a financial planner.
     
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  12. JohnPropChat

    JohnPropChat Well-Known Member

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    Thanks Terry. Let's consider overseas property investing for example. SMSF rules are a minefield when it comes to this. So the best structure (separate overseas entity, declaration of trust etc) to make sure that it'll comply with the rules is done by a lawyer? Would the lawyer need any extra advising quals like SMSF Auditing or something?
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This would be legal advice. Advising on Complying with SIS legislation. No auditiing or other quals needed.
     
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  14. MorganHB

    MorganHB Well-Known Member

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    @Terrychris getting finance is generally harder and a longer process than your stock standard home loan. It depends on the banks lending criteria. Some might classify the asset (car park) as residential, others may call it commerical. Moving on from that, the major SMSF lenders do have different requirements when lending to SMSF's (ie different LVR's, Minimum net assets in SMSF, Minimum loan balances, 'x amount on contributions from SMSF members' and some even want a minimum annual ICR covenant requirement to be met). I'd also question those banks on their interest rates, on-going fees and establishment fees.
    Hope this helps!
     
  15. Terrychris

    Terrychris Well-Known Member

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    Thanks Morgan , are you a Lender by any chance ?
     
  16. Lizzie

    Lizzie Well-Known Member

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    There are very strict guidelines for buying property through a SMSF and I would recommend seeing a specialist SMSF accountant. I have one (semi retired so not taking on new clients) who does nothing but SMSF and is all over them.

    We bought a property with out SMSF. The banks couldn't get their head around the deal to lend us the 20% the SMSF was short - SMSF, rural, tourist accommodation - so we ended up loan the SMSF the extra ourselves. This loan is fully paid out as it is now (as of 1st Jan 2017) illegal to lend personally to your SMSF - any mortgage taken out by a SMSF now has to be via an accredited third party.

    The SMSF is not permitted to run the business - it is only allowed to own the physical property. We had to set up a P/L outside of the SMSF, that operated the day to day transactions (income and expenses) of the accommodation business, and pays the SMSF a contracted lease amount each quarter. The sole shareholder of the P/L is the SMSF, so all dividends will go to the SMSF as well.

    There are a lot of restrictions. If the SMSF has a mortgage, then it cannnot make any improvements to the property - repairs only. We cannot draw an wage for services rendered from the P/L as this is not considered arms length - unless we can prove beyond any notion of doubt to the ATO that the amount paid is what would be paid to an outsider (not worth the hassle).

    Not putting you off ... you just have to realise there are lots of restrictions and audits you have to go through to keep everything above board.

    The SMSF costs us around $3,000 year in accountants and auditors fees.
     
    Last edited: 27th Jan, 2017
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This is not the case. It is still possible but there has been recent news about the ATO getting stricter at what they will interpret to be Non Arms Length Income (NALI) to the fund.
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I would be concerned about this. Did you seek legal advice?

    I am not an SMSF specialise but would have thought the in-house asset rules could be breached as the comapny is a related party.

    Also by not drawing a wage from the company you are diverting more funds into the SMSF which could result in Non Arms Length Income and adverse tax consequences.

    What would normally happen is the SMSF would lease the land to a company which is operating the business and the company would pay market rent.
     
  19. Lizzie

    Lizzie Well-Known Member

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    I just know that the SMSF had to pay out the monies it owed us by 31st December, otherwise we would've had to refinance via an arms length lender due to recent changes.
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Or put the loan on arms length terms. There was no need to pay it out or refinance.