To place IP in SMSF or not to.....

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Keentolearn77, 1st Aug, 2019.

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  1. Keentolearn77

    Keentolearn77 Well-Known Member

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    Hi
    This may not be an easy answer, & I know everyone's circumstances are different, but has anyone generally crunched the numbers & found an increased benefit (tax minimisation, revenue, growth etc etc) of placing an IP that has been in their own names for some time, and subsequently placing the IP into a SMSF...
    I am looking deeper, but if there are any good links regarding the Pro's & Cons of this, then much welcomed.....
     
  2. Terry_w

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

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    Unless it is business real property it would not be possible to transfer to a related SMSF.
     
  3. Redwood

    Redwood Well-Known Member

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    Con - cannot purchase residential property off a related party, unless it meets the definition of business real property. If you could everyone would, unfortunately you cannot. Everyone asks this question.

    Cheers Ivan
     
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  4. Keentolearn77

    Keentolearn77 Well-Known Member

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    Thankyou gentleman
     
  5. MWI

    MWI Well-Known Member

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    As replied can only do under commercial terms.
    BUT some reasons for having IPs in SMSF is for protection (against say bankruptcy), lower earnings tax (15% in accumulation), lower CGT (around 10%), currently after 60 years old if below $1.6M and in pension phase all income generated is taxed free.
    Just check out the advantages in general about investing in SMSF as opposed outside that entity.
    Also does depend on your age and consideration for the long term.
     
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  6. Scott No Mates

    Scott No Mates Well-Known Member

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    Check out the disadvantages too:
    • Lack of liquidity (ie may need to sell the property to receive the 'cash' so that you can make the compulsory withdrawals in pension mode)
     
  7. MWI

    MWI Well-Known Member

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    Yes many do lack liquidity, if most allocated in property only. I wonder what the % of members are in that situation too?
    Also locked in for long time if young investor. Rules and regulations can always change yet money is locked in for the long term.
    I am heavily in IPs too but have nearly paid of all and sitting that cash in offsets instead of loans. I thought I could utilize that cash as liquidity, although we are still in pension phase at this stage? Other option would be to keep selling one say every few years and either keeping in cash or converting some of that equity into shares.
    The wonderful thing is having choices and big enough portfolio to be able to do that.
    Diversity from dividends from private IPOs also helps.
    But it all comes down to individual circumstances in each case.
     
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  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    But the basic issue is that its prohibited despite advantages and disadvantages.
     
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  9. Redwood

    Redwood Well-Known Member

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  10. geoffw

    geoffw Moderator Staff Member

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    Even if you bought a property in your SMSF, any negative gearing would presumably be ineffective?
     
  11. JohnPropChat

    JohnPropChat Well-Known Member

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    Negatively geared at the SMSF's rate against SMSF's income, which is usually 15% or 30% (Div 293)
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Not necessarily but true.. The separate thread on this issue exists :

    Tax Tip 225: SMSFs and Negative Gearing
     
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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    No. Div 293 applies to the MEMBER. That wont be changed. However the rate on a fund earning is between 0% and 15% as a maximum eg CGT gains at 10% etc. The post above this one has a thread on a strategy that can incorporate neg gearing at a members marginal tax rate !!
     
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  14. JohnPropChat

    JohnPropChat Well-Known Member

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    In a single member fund, when the loss is attributed to the member, this would be after 15% negative gearing is it? Though Div 293 applies.
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Div 293 is based on member contributions and issued to the member who can choose release of funds. Further depleting fund assets.

    The fund taxable income will be calculated after offsetting the rental loss. A 15% tax saving at best. If the neg gearing creates a loss it wont impact tax in any way and may c/forward. Perhaps accumulating losses unless a new source of income or new contribution stream occurs. A further depletion of cashflow and assets.

    If the fund is approaching pensions its even worse. The fund may be obliged to pay a member a minimum 4% pension and if cashflow is negative the assets may deplete faster
     
    Last edited: 2nd Aug, 2019
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  16. Stoffo

    Stoffo Well-Known Member

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    Interesting.
    I have been considering my options also.
    I am self employed, earning an average wage (under 90k) and my super fund balance is dismal (under 200k), yet I would like to further expand my investment options.....
    I have a commercial that is worth considerably more than I as an individual paid for it and is CF+.
    What to do ?
    I could sell the CIP to a newly formed SMSF, thus freeing up a chunk of the monies in super to me to invest/spend (likely determined to be income unless re invested)
    I could sell it to my company and let it tick over until I retire, then start to draw down on what is in the offset and later reverse mortgage as a pension ?

    Other thoughts ? TIA
     
  17. Terry_w

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

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    You could sell to a SMSF but there may be CGT to pay now, could be stamp duty exemption, and could be a good strategy overall. It might be part of a debt recycling strategy too.

    You could also sell to a company, but you would not want to put your cash in a company's bank account as you might be taxed when you put it out.
     
  18. Stoffo

    Stoffo Well-Known Member

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    True @Terry_w , I was of the understanding that when you wind up/close operations of a company and have no intention to ever work again that you can transfer a large asset amount into superannuation?
     
  19. geoffw

    geoffw Moderator Staff Member

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  20. Terry_w

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

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    Or you might lend the company money so it can later repay you.
     

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