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iLearn Superannuation Property Retire with Property
02
WELCOME
Superannuation Property The Australian Superannuation scheme has been a core focus
is an industry leader of our government and finance sectors for generations, now the
benefits of having a safe retirement through tax-free income is
in end-to-end solutions
available with direct property.
for the purchase of
direct property inside
A self-managed superannuation fund (SMSF) is one of the options
your superannuation that gives you the biggest amount of independence. Naturally, the
fund. option comes with some risks and you need to understand the
pros, the cons and the little details that will make all the difference.
We know that you are
an active individual Superannuation Property decided to share some of the biggest
SMSF secrets and tips that will let you achieve success on your own.
and you are results-
The detailed, step-by-step guide we have developed for you will
oriented.
take confusion out of the equation.
This e-book is created
to give you all the
answers without
wasting your time.
The information
is structured and
straightforward so that
you can get the most
out of it.
03
“The starting point of all achievement is desire. Keep this constantly in mind.
Weak desire brings weak results, just as small fire makes a small amount of heat”
- Napoleon Hill
04
SMSF
Having somebody else SMSFs have gained popularity lately, becoming the single biggest
manage a super fund asset class in Australia. 2013 statistics show that the number of
self-managed super funds in Australia registered each week is over
for you gives you
1000 per week.
freedom but it is
also connected to
A self-managed super fund is defined as a fund established by
responsibilities you one to four people for the sole purpose of providing retirement
need to understand. benefits. The members are also trustees of the fund, which means
that they exercise full control over the investment and they are
responsible for investment decisions. Members have a lot of
freedom but they will also have to accept regulatory responsibility
that would otherwise be the duty of the existing noted super fund.
05
important note
Even if they have A SMSF in Australia needs to address a number of ATO
tons of experience, requirements. The conditions are strictly defined as follows:
financial institutions
• The SMSF should have at least one and no more than four
will fail to offer a
members.
personalised approach.
• Each trustee or director also has to be a fund member.
• Each member of the SMSF should also be a trustee or a director.
Taking control and • Members of the fund cannot be employees of each other.
being in charge • The members are fully responsible for the SMSF and the manner
will let you access in which it meets strict requirements and regulations.
a wider range of
The self-managed fund brings various advantages that a
opportunities,even the
fund managed by a financial institution will be incapable of
ones that financial
providing. Some of the most important benefits include:
institutions fail to
mention. • Financial independence and 100 percent control over
investment.
• Participation of more than one family member in the fund.
• Income security during retirement or permanent work inability.
• Flexibility and freedom to make your own decisions.
• Low taxation rates.
06
07
steps to SMSF
You will need to follow Setting up the SMSF involves the following steps:
a number of important
1. Establishing the SMSF trust.
steps in order to do it
2. Obtaining your tax file number and your Australian business
the right way.
number.
3. Working on your investment strategy.
Once again – remember 4. Opening your fund’s bank account.
that a SMSF will
require both time and * The steps are included as described by the Australian Taxation
effort on your behalf. Office.
In more practical terms, you will have to do the following:
Talk to a financial
consultant to have all
• Make sure that you understand all of your obligations and
of the details figured
responsibilities. This preparatory step is very important when it
out in advance. comes to ensuring the smooth functioning of the SMSF in the
future.
• Choose the members. There can be up to three other people
involved in a SMSF. Typically, most people choose members of
their family but you have lots of freedom and flexibility.
• Select a trust deed. The trust deed should be chosen with the
intention of maximising the SMSF potential.
• Put your documentation in order. This is important in legal and
regulatory terms.
• Get insurances that will be owned by the SMSF.
• Let your current employer know that you have set up a SMSF.
Typically, you will have to provide your employer with a letter
of compliance and a letter that lists the manners in which
contributions can be made to the SMSF.
• Work on your investment strategy and begin implementing it.
0809
Frequently asked questions:
Superannuation
10Can I buy property using my to make as much money as remain within the investment
superannuation? possible, so looking for savings objectives outlined within the
Yes. You are able to purchase with property managers is investment strategy to ensure
residential investment and important. that it remains compliant.
commercial property (such The investment strategy
as shops, business premises, Why use an SMSF to can be updated over time
offices and factories) within purchase property? to encompass a member’s
a Self Managed Super Fund SMSF’s give you the ability changing investment needs.
(SMSF). to access a lump sum of
money to use as a deposit
Can my superannuation
How much superannuation for a property purchase.
fund pay for personal
do I need to get started? Superannuation Guarantee
insurances?
This is dependent on the contributions of 9% can be
cost of the investment used to cover any negative Yes. You are able to house Life,
property being purchased. cash flow effects with the fund Total and Permanent Disability
Establishment costs, a meaning that properties can and Income Protection
minimum deposit of 20%, usually be purchased and insurance easily within an SMSF
purchase costs and a reserve held without any effect on ensuring the trust deed allows
of 1 years negative cash personal cash flow. It can be for it. The premiums can be
flow is needed. Take into more tax advantageous to paid from the fund balance
consideration you are able purchase property within the and members are able to make
to combine up to 4 individual Superannuation environment. pre tax contributions to the
member’s superannuation into fund to offset the effect of
an SMSF to increase the capital Why set-up a SMSF? these premiums. Thus making
available. Superannuation an excellent
The investment flexibility
way to house personal
gained from the SMSF
What is an SMSF? insurances.
structure for member’s
Link to SPF for further advice.
SMSF’s allow people to have retirement funds is the number
greater control over the one reason for its rapidly
What are the benefits of
investment of their Funds growing popularity. Greater
owning property inside
for retirement. This kind control over investments is also
super for my retirement?
of flexibility has seen over very important to Trustees.
450,000 established and over During pension phase, trustees
$15 billion invested in direct Why do I need an have the opportunity to benefit
property. Investment strategy when from tax-free income from
establishing my SMSF? property rental income. No
capital gains tax on the sale
An investment strategy
Can I use a property of a property asset during
is required by law when
manager to manage the pension phase, which can help
establishing an SMSF. The
property? investors save hundreds of
investment Strategy outlines
thousands of dollars.
Yes. All expenses including the member’s tolerance for
property management fees, investment risk and investment
What are my out of pocket
remember the idea of a SMSF objectives. The fund must
11expenses to get started? classes. the fund is now taxed at 0%
and Capital Gains Tax (CGT)
When establishing a SMSF, all
What other assets can my is also decreased to 0%. This
costs are incurred by the new
superannuation purchase? means that you are able to sell
SMSF, which means that there
properties in Pension Phase
are no out of pocket expenses • Shares (Australian and
and pay NO CGT. This can
to the members of the fund. International)
save hundreds of thousands
• Listed Property Trusts
of dollars tax for a member
How big is this SMSF • Direct Property
which all goes towards a more
industry? What are other • Fixed Interest
comfortable retirement.
Australians doing? • Cash and Deposits
The SMSF industry is now the
• Managed Funds
biggest asset class in Australia.
• Art/Collectibles
Australians have currently
invested over $450 Billion into What legislation do I need
SMSF’s. to be aware of?
Source: ATO
SMSF are governed by the
Can I contribute money
Australian Tax Office and are
from my personal income to
regulated by the SIS Act.
my SMSF?
Yes. A member can contribute Should I buy a property in
money from their personal my personal name or within
income to grow the SMSF or an SMSF?
cover expenses. Typical the
If you would like to understand
ATO provides guidelines as to
the difference between
how much money a member
these structures, consult a
can contribute to an SMSF
Superannuation Property
expert today. Enquire here.
Should I buy shares with
my superannuation or
What is Pension Phase?
property?
When a member attains
Under superannuation law,
preservation age (currently
members don’t have to invest
between 55-57 dependent on
in any one asset. This means
age) they are able to amend
you can invest in shares,
the trust deed to change their
property or a combination of
benefit to Pension Phase.
both. Superannuation Law
Pension Phase means a few
allows members to diversify
changes for the member and
the portfolio into multiple asset
their Superannuation. They
classes, not just shares and
must now draw an income
property. It would be prudent
from their SMSF and the tax
to consider having a diverse
rates within their fund change.
portfolio across multiple asset
Investment Income within
1213
The Link Between Property & SMSF
Since 2007, the year Self managed super fund property investment can involve both
when taxation changes residential and commercial real estate. Several important rules
affect the property purchase:
were made to allow SMSF
property purchases,
• The property cannot be the residence of a fund member.
SMSF investing in
• The property cannot be used as a vacation house.
property has seen • The property should be purchased solely for investment
tremendous growth. purposes.
Various factors led to
this development. Establishing a connection between SMSF and property can be great
for beginners in the niche. Most people own at least one house or
apartment and they have better understanding of the real estate
sector than of the financial and the investment world.
Why is residential property so great for a SMSF?
Here is a list of the most important reasons to consider a
Superannuation Property:
• No out of pocket expenses
• Build a retirement income through direct property.
• Secure a safe-long term investment.
14Continued
Investment in property is one of the most attractive and viable
options for investors. Still, you need to understand the strategy and
the steps involved in making it happen.
We are ready to share our experience and the insider’s information
that we have collected through our professional operations. The
right property investment strategy will provide you with taxation
benefits, the security of your investment and with long-term money
making opportunities.
Remember that buying property through a SMSF can be more
profitable than purchasing it as an individual. The market has
different regulations for individuals and for funds. The latter will
benefit from such disparities.
Follow these steps when investing in residential property through a
SMSF:
1. Seek professional assistance. We can help you come up with the
right property investment strategy.
2. Set up a Security Trust on behalf of your SMSF. You will need it to
provide loan guarantee and to buy/hold the property.
3. Talk to your broker about qualifying for a loan.
4. Buy and hold your property through the Security Trust.
5. Repay your loan and once you are done, transfer the property
from the Security Trust to the SMSF.
15Frequently asked questions:
Property
1617
Can I buy property using my What happens if I can’t Who should I ask for advice
superannuation? pay the loan for my when buying property with
superannuation property? my superannuation?
Yes. You are able to purchase
residential investment and Loans for Superannuation There are multiple advisors an
commercial property (such Property are non-recourse, this investor should consult when
as shops, business premises, means that the lender is only buying property, they include:
offices and factories) within able to take the property and
a Self Managed Super Fund has no right to the remaining • Finance Broker
(SMSF). assets or funds in your SMSF. • Financial Planner
• Accountant
What are the potential tax How does borrowing to • Property Advisor
benefits of owning property buy a property inside • Solicitor (Property)
inside my superannuation? superannuation affect my
personal portfolio? Or you could talk to
Within the Superannuation
Superannuation Property who
environment rental income Buying property inside
provides all of these services.
from investment properties superannuation could have
Enquire Here
is taxed at 15%. This rate also an impact on your personal
applies for Capital Gains tax portfolio if you are required to
Can I use a property
in the first year of ownership, contribute more money into
manager to manage the
after which it drops to 10% and the SMSF to cover expenses.
property?
no capital gains tax is payable It’s extremely important
on the sale of a property in that members choose the Yes. All expenses including
pension phase. right property to match your property management fees,
SMSF capacity (income and remember the idea of a SMSF
Can I borrow to purchase expenses). Members can to make as much money as
property with my avoid this by simply buying possible, so looking for savings
superannuation? an investment property that with property managers is
doesn’t cost the members important.
Yes. Most banks provide
more then what the SMSF is
loans to SMSF’s to purchase
earning. Why do I need a corporate
investment properties of up to
trustee when buying
80% of the property value.
What is a bare trust? property?
Who pays the mortgage? A Bare trust is a trust where You don’t necessarily need a
And other expenses of the the beneficiaries are absolutely corporate trustee when buying
property? entitled to the assets within. property, however using a
For example, a bare trust holds corporate trustee is more
The SMSF covers interest,
an investment property on often then not favored by
maintenance, insurance, rates,
behalf of the SMSF Trustee’s; the lenders, plus a corporate
body corporate fees, property
the bare trust can only transfer trustee provides members with
management and any other
ownership of the investment added asset protection. Risk
associated property expenses.
property when the debt avoidance strategy should be
These expenses will usually be
(mortgage) is paid off. a number one priority when
deductible to the fund.
buying property with your
18superannuation. Can I claim depreciation Are there any disadvantages
inside a SMSF? to owning a property
Can I buy a property before through a SMSF?
Yes. Standard deductions
my SMSF is set-up? The answer will depend on the
such as deprecation are
circumstances of the fund and
No. You can not purchase a allowable inside an SMSF.
the members.
property before you have all Consult Superannuation
the correct SMSF documents Property expert for a property
With certain exceptions
in place. Superannuation depreciation schedule.
preserved superannuation
Property can provide you all
benefits must remain in the
the compliant documentation What are the asset
super system until members
to ensure you set-up a SMSF protection advantages of
permanently retire after
correctly in 24 hours. owning property in a SMSF?
reaching their “preservation
Assets held in a super fund are age” (currently 55) or turn 65.
Who pays the deposit when
legally inaccessible to trustees
buying my next investment
in bankruptcy provided The locking of benefits into
property?
contributions or asset transfers superannuation could be
The SMSF pays all deposits on were not made with the “main seen as an advantage or
investment property. No out of purpose” of avoiding creditors. disadvantage by some fund
pocket expense are required. That makes super a prized members.
method of asset protection,
Who can rent my particularly as there is no dollar A factor to consider is that
superannuation property? limit on the protection. many high-income earners
The only rule when renting an gain valuable tax benefits by
Many small-medium business negatively gearing properties in
investment property owned
owners for instance place their their own names.
buy an SMSF is you cannot
business premises in a SMSF
rent the property to a related
partly as an asset-protection That is because the shortfall
party. This means a member’s
strategy. between rent and deductible
relative, or spouse.
costs (mainly interest) is
Take the example of husband- deductible against other
How much will the bank
and-wife business partners personal income.
lend me to buy a property
who own business premises in
with my SMSF?
their own names. Depending What are the advantages of
Generally, banks will lend on the circumstances (including gearing property through a
between 70% and 80% of the any professional advice SMSF?
property value. Each loan is received) the couple may
assessed on a case-by-case First, a SMSF can buy an asset
decide to sell the property to
basis and you should consult which may otherwise be
their SMSF at market value or
a Superannuation Property unobtainable given the fund’s
make an in-specie contribution
finance specialist for more total asset value and its level of
of the property to the fund.
information on your borrowing contributions.
(See the next point.)
capacity. Enquire here. Second, capital gains are
multiplied if a geared property
1920
rises in value. interest payments to the date nothing in the legislation
Third, borrowing to invest may of the default. As well the to stop a lender seeking to
enable a SMSF to hold a more lender can deduct its costs of enforce personal guarantees in
widely diversified portfolio than selling the geared property and the event of a default.
would have been possible if discharging the loan before
all or most of its savings were paying whatever is left to the Is my SMSF allowed to spend
spent buying a single property. fund. its entire savings on a single
Fourth, the capital gains are investment property?
concessionally-taxed or tax- That means a fund which
Superannuation law does not
free (if the fund disposes of spends all or most of its assets
prohibit a fund from owning
the property when its assets to pay initial loan installments
just one asset. Some fund
are backing the payment of a could be wiped out in a worst
trustees specifically decide
superannuation pension). case scenario.
to have SMSF portfolios
dominated by a single
What are the disadvantages Astute SMSF trustees would
property asset, perhaps after
of gearing property through not borrow to invest in
considering the diversification
a SMSF? property or any other assets
of their other super and non-
without understanding the
Gearing magnifies any gains super investments. SMSFs
risks.
but it magnifies any losses. are required to have written
Gearing is detrimental for a investment strategies
A danger is that fund trustees
fund unless the property’s
may gain a false sense of
value increases. Despite the requirement that
security because a super fund
Further, a geared SMSF fund trustees must consider
is barred from providing any of
faces the challenge of trying diversification when preparing
its other assets as security for
to ensure there is enough an investment strategy they are
a loan.
cash flow from earnings and not required by law to diversify.
member contributions to
This provision will not
service the property loan. Financial planners and
necessarily protect a heavily
superannuation specialists
geared fund from losing much
Superannuation and financial typically urge fund trustees
of its members’ retirement
planning specialists warn that to recognise the possible
savings if a property
the halving of the standard consequences if their
investment turns bad and loan
concessional contributions retirement savings are overly
repayments are not met.
for members over 50 to an dependent on the profitability
indexed $25,000 a year from of a single high-cost asset.
Why should SMSF members
2012 - 13 will inhibit the ability
be cautious about giving
for some SMSFs to meet loan What are the advantages
personal guarantees for
obligations. of my SMSF owning my
property loans?
business premises?
What happens if my SMSF Although SMSFs are prohibited
Small-medium business
defaults on an investment from providing other fund
owners commonly arrange
loan? assets as security for an
for their SMSFs to hold their
investment loan there is
The fund can lose capital and business premises for a
21range of reasons including tax Depending on the struggle to meet loan
effectiveness, asset protection circumstances that could installments on a geared
and succession planning for provide valuable security for property and that could lead to
family businesses. the family business. a forced sale.
A family business, for What are the disadvantages Another consideration is how
instance, would have to pay a of my SMSF owning my the tax office – in its role as
commercial, arms’ length rent business premises? regulator of self-managed
to the family’s SMSF. In turn the super – may react to a fund’s
Conflicting loyalties and
fund would pay concessional failure to collect overdue
pressures may arise if your
tax on the rent and typically rent from the fund members’
business strikes financial
benefit from many of the business.
problems and fails to pay its
usual tax breaks available
rent.
to landlords – including tax One of the toughest actions
deductions for interest on a that the regulator can enforce
On one side the family
property loan. under the Superannuation
business may require the
Industry (Supervision) Act is
premises to keep operating in
Some fund trustees would gain to remove a fund’s complying
the expectation that profits will
a feeling of security because status.
return.
their family business, not some
other unrelated, perhaps little
On the other side the fund’s How much tax do I need
known business, is the tenant.
trustees – who are the same to pay on property inside
people as the business owners superannuation?
Founders of a family business
in these circumstances – are
– such as married or de facto
Property Owner
legally obliged to maintain the Tax Payable on Individual Company Superfund Super Pension
couples – sometimes hold the
fund with the sole purpose of
Rental Income Up to 45%1 30% Up to 15% Nil
premises of the family business Capital Gains2
Up to
30% Up to 15% Nil
providing member retirement 22.5% 1
in a two-person SMSF initially 1
. Ignores the Medicare levy
benefits. 2.
Assumes the asset has been held for 12 months or more
for retirement saving, tax and
Under superannuation
asset protection reasons. Can I transfer my existing
law fund members must
As the founders approach investment properties into
be trustees of the fund or
retirement they may decide my superannuation fund?
directors of its corporate
to allow their adult children to
trustee. Only if they are business real
become fund members.
or commercial properties.
Much of the fund’s financial No residential investment
Thanks in part to the adult
wellbeing may depend on properties currently owned
children’s super contributions
regular payment of rent – by a member or related party
such a fund might eventually be
particularly if a heavily geared may be transferred into an
in a financial position to retain
property is the fund’s sole or SMSF. Residential investment
ownership of the business
dominant asset. properties may not be rented
premises for future generations
to a member or related party
while paying the founders’
If your business is unable either.
retirement benefits.
to pay rent your fund may
22final SMSF Checklist
We hope that we have Before you get started, you can use the following checklist to
managed to address determine your level of readiness and confidence with a self-
managed investment option.
your biggest concerns
and the most ambiguous
Can you give a positive answer to all of these questions? If you can,
issues. super fund
you are definitely ready to begin investing and take control of your
own self-managed
1. Are you 100 percent certain that the SMSF is the right option for
your retirement?
2. Have you done enough research?
3. Are you ready to name the other members of the SMSF?
4. Are you familiar with the laws and the regulations in the sector?
5. Do you know the steps that you will have to undertake in order
to set up SMSF?
6. Do you know how to work on your investment strategy and
where to seek advice?
7. Are you ready to deal with paperwork and all the obligations of a
trustee?
8. Have you researched property investment opportunities?
9. Are you aware of the risks and possible shortcomings of SMSF?
10. Do you have an emergency plan for situations that may be out of
your control?
11. Do you understand the SMSF, its functioning and processes?
We hope that you have answered with 11 yes’s! If you have some
uncertainties and fears, please do give us a call! We can help you
create your investment strategy and we will work together to
discover the option that will work best for you and your family.
Expert assistance and our experience in the niche can be key to
determining the success of your super fund. We are ready to offer
assistance!
23Retire with Property 1300 U Retire www.superannuationproperty.com Brisbane Level 1, 18 Masters Street, Newstead, Qld, 4006 GPO Box 2291 Brisbane QLD 4001 Melbourne Level 3, 30 Collins St, Melbourne VIC 3000 Sydney Level 3, 60 Moncur St, Woollahara NSW 2025
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