What Entity To Buy This In?

Discussion in 'Accounting & Tax' started by kierank, 25th Jan, 2016.

Join Australia's most dynamic and respected property investment community
Tags:
  1. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Was suggested/recommended by the lawyers who updated our Wills last year
     
    Terry_w likes this.
  2. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Property in super may be worth considering because it is a tax haven inside super.
     
  3. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Problem with property in super during pension is the minimum pension will generally exceed the net yield and as member/s age it gets worse. A strategy that really needs financial projections and advice especially if members have no income outside super...Is there a tax saving ?
     
    kierank and Terry_w like this.
  4. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    This is important to consider, yet virtually no one buying in a SMSF, that I have encountered, considers this. The plan maybe to have the SMSF sell, CGT free, and then pay out pensions

     
    kierank likes this.
  5. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Totally agree. Pension begin at a minimum of 4% of smsf balance (at start of each financial year) and rises as you age to 14% of smsf balance (at start of each financial year). If your smsf holds mainly property, you might be lucky and cover the 4% (after property expenses). I believe all smsf's with mainly property could not pay 14% of the smsf balance (after property expenses). So you would have to start selling properties, although CGT free, the smsf has to pay commission, legal fees, etc. and maybe at a time when the property market is in a slump. Otherwise, it will become non-complying!!!

    I would rather own shares in an smsf and keep about 3 years pension money in cash or liquid funds. A lot easier to meet the 4% pension and one can sell down shares in small lots with minimal cost over a 2-3 year period to keep your cash reserves healthy. No need for firesales!!!
     
  6. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    It all depends. There may be a 10 year IO period with an offset account attached which can allow a big cash buffer to be built up. Further contributions may be added, other members may be added, contributions can be made while a pension is being paid etc.
     
    kierank likes this.
  7. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    I understand you can add new members (up to 2, to give a total of 4, I believe). We were thinking about doing this years ago (that is, add in our two kids) but our accountant and fin. planner advised against it. Off the top of my head, I can't remember why. It must have been a good reason as we didn't do it.
     
  8. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    Could be many reasons, but which would succession of control.
     
    kierank likes this.
  9. Paul@PAS

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

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Adding kids (adult or child) to a SMSF opens a can of worms that can lead to serious problems. I recommend clients who consider doing this seek independent legal advice before acting. There are a large number of SMSF strategies that used to rely on misunderstood rules and law that have been given better meaning in recent years eg : reserving strategies that may depart from SIS Regs, breach of trustee obligations and involvement of all members in decisions which have eroded the belief that bringing kids into the fund allows intergenerational wealth transfer.

    If it sounds too good to be true it probably is. And the adviser with PI is where the buck stops.

    One of the greatest under-utilised strategies for SMSFs allows 2 couples to have a common SMSF and there are countless legal reasons why they should not do this. One of the greatest is that if one couple disadvantage the other there is little to no legal recourse for a SMSF. Sure they can go to court - But it may already be too late by then.
     
  10. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    Yeah, I think that was it. The wife and I would have 50% control and the kids would have the other 50% but our share of the fund might be 90% and the kids 10%.

    I love my kids, I trust them, etc but that might have a step too far.

    I hope I got that right.