Why is taking Advice so important

Hi
At Price we setup SMSF's for a fixed price (about $2,500) depending on your needs and about $3,000 in annual fees again depending on its size. If you hold many properties and have lots of transactions, it will take us longer to complete, however we charge you on a time basis.
We recognize that SMSF's are not for everyone and we ascertain that you really want one first.
You will need at least $200,000 in your super before we will setup one for you otherwise the costs exceed the benefits. That said if you had $500,000 for example then an SMSF is much cheaper than any other super option out there.
We will provide you with as much help as you need to meet your goals, but we encourage you to be hands on as well.

 

What are the benefits of a SMSF vs an industry or retail fund?

Fees for SMSF assuming $200,000 in super.
$2,500 = 1.25% setup fee
$3,000 = 1.5% ongoing fee
Wrap fees = ?? Depends on what wrap is used
Investment fees = ?? Depends on what fund is used

So 2.75% fee in the first year + wrap fees + investment fees
Ongoing yearly 1.5% fee + wrap fees + investment fees

Fees for SMSF assuming $500,000 in super
$2,500 = 0.5% setup fee
$3,000 = 0.6% ongoing fee
Wrap fees = ?? Depends on what wrap is used
Investment fees = ?? Depends on what fund is used

So 1.1% fee in the first year + wrap fees + investment fees
Ongoing yearly 0.6% fee + wrap fees + investment fees

Most mysuper product fees are approx 0.40% - 1.20% - in total
Index options in super funds range from 0.03% - 0.40% - in total

I understand SMSF gives you the flexibility to own commercial/residential properties. I also understand SMSF allows you to use leverage. What are the other benefits apart from these?

Because as far as I can tell, if I wanted to hold index funds, I'd be better off in an industry super fund.

 

Hi Structurelover

Apart from the potential to own property in your SMSF, you can also enjoy the benefits at retirement tax free should you decide to sell your property.

If you love to own property, then setting up an SMSF is a no brainer. Your property will be paid off from your employer and your personal tax deductible contributions and when you retire and commence a tax free allocated pension after you cease work from age 60 onwards, then you can sell your property and the tax rate for your capital gains will be zero.

This is the value of advice.
William@PFI

 

Hi William. The gist of your answer was. SMSF's benefit = Owning a property + tax free when sold after age of 60.

I'm playing the devil's advocate for my own benefit. Particularly to your tax-free claim. It does sound like it is unique to SMSF?

Is paying 0 capital gains unique to SMSF? I would argue that almost all super funds transfer to retirement pension fund = 0 tax.

When you move it from accumulation to TTR = 0 capital gains tax. When in retirement pension fund, 0 income tax. So it is not unique to SMSF?

So is it safe to say that the only benefit of SMSF = Owning a property only?

 

Super money is not the employers money. It is the person who earnt its money It has 15% tax paid on it. I prefer to have the tennant and tax man pay for my property than pay for it myself. You can sell property outside super and pay minimal tax ,easy if you are "retired" A good accountant can have you paying less tax with money outside super than you pay inside super. You loose 15% of your money when you put it inside super and you can loose other benefits that reduce taxation.

 

Hi Ruby
Directly owning property is unique to an SMSF as you cannot achieve that outcome with any other type of Super.

Think about this in another aspect, you can achieve the ownership of your investment property after paying the 15% contributions tax, whereas outside super you will be using after tax funds to acquire the property. The interest and expenses like council & water rates, strata fees, repairs etc are tax deductible. Rent is assessible at your marginal rate whereas inside super it is assessible at a flat rate of 15%.

Now lets assume your employer is contributing $12,000 to your SMSF and you are personally contributing $15,500 to make a total of $27,500. less $4,125.00 Contributions Tax = $23,375.00 - this amount can be used to reduce your debt on the property. Your rent is assessed at 15% and your expenses reduce your rental income on a similar basis. (If your combined salary and super exceed $250,000 then an additional 15% tax will apply of all contributions in excess of $250,000)

Property owned outside super is firstly repaid from after tax dollars, therefore your tax rate will be higher than inside super. As an owner of an investment property you are entitled to a tax free gift of 50% of the Capital Gains with the remainder taxed at your marginal rate. If you purchased your property 20 years ago, you would currently have a very significant CGT liability and some of that liability will be taxed at the highest marginal rate.

In your SMSF, that same property sold after you retire and you are in receipt of a tax free allocated pension which commenced prior to 1 July of the year you elect to sell your property. Under the present rules the CGT associated with this property will be tax at the same rate as your Allocated Pension or in other words its tax rate would be zero.

Inside your SMSF the accumulation of your property asset will be taxed at a flat 15% however outside your SMSF the accumulation will be taxed at your highest marginal rate.

Inside your SMSF the CGT will be taxed at $0 whereas outside super your taxable CGT will be taxed at your marginal rates.

Owning property both inside and outside super has advantages, however the tax paid inside super is much lower that outside super and you need to look at a specific property and compare the tax outcomes to reach a conclusion.

William@PFI

 

Hi William,

Again with my question from above.

SMSF vs Industry/Retail Fund
1. Buying property using super - SMSF only, I agree.
2. Tax benefits, i.e. transition to retirement pension paying 0 tax - Is this SMSF only?

 

Hi Structurelover

This type of investment can only be undertaken in a SMSF.

Both Industry Funds and Retail Funds allow managed property investments but not any direct ownership.

Any :long term assets that your own inside an industry fund or retail fund are part of a pool and CGT is paid as a pooled asset.

When you hold assets within a SMSF you control the capital gains tax events and you are only taxed on the sale of a specific asset. Once you have held the asset for 12 months the CGT tax rate is reduced to 10%.

William@PFI

 

It's not that hard to keep taxable income as a self employed RE investor in the 15% range.
And now company tax will be 25%.
Unless earning a high income as a PAYE there's no reason imo to lock up money for 30 yrs.
And as Ruby said, it's not paid by the empoyer, that money belongs to the employee.
Just as franked dividends are wrongly described as tax free.

My point is that the standard super system is not good for everyone and people should look outside the box as well.

 

Hi

I agree with you that an SMSF is not for everyone.

When you acquire an investment property it is often a longer term investment and if your income is much higher, then the opportunity to reduce your tax is very enticing.

William@PFI