Today, I wanna talk about the biggest benefits of
buying a property through a self-managed super fund.
Hey everyone,
Tuan from Duo Tax here with another video designed to help you become a better property investor.
In 2019, the ATO reported that there were about 600,000 self-managed super funds.
Of all the assets that they invest in, investment properties only make up 13%!
However, we’ve seen increasing popularity with investors using self managed super funds
as a way to take advantage of tax concessions that
are offered as a part of investing with a self managed super fund.
But just like what Uncle Ben told Spiderman, with great power comes great responsibility.
And in this case, it means that there are a bunch of laws and rules you need to play by
to make sure you’re doing the right thing.
You’ll wanna stick around until the end, where I share with you the five biggest tax
benefits for investing in property with your self managed super fund!
Now before we get into it, we want to be clear that this video is for informational purposes.
In no way should you interpret this as tax advice. We always recommend working with
a qualified accountant or tax agent who can give you the best advice for your situation.
You ready? Let’s get into it!
So to understand how you can use a self managed super fund to buy an investment property,
you need to understand, well, self managed super funds!
Self managed super funds need to comply with Australian superannuation legislation,
which are designed for the sole purpose of providing retirement benefits to its members,
otherwise known as the sole purpose test.
We won’t get into the weeds of what this involves but just understand
that the trustees of the fund must comply with these obligations.
If you’re thinking about purchasing a property under your super fund, there are a few rules:
Number 1 - the property can’t be owned for the purpose of living in
it. This means you can’t rent the property OR personally live in it.
Number 2 - Any related parties or trustees of the fund also can’t do
what I just spoke about in number 1.
And number 3 - you can’t acquire the property through your super fund from any related party
or other trustees. For example, if your brother is currently selling a residential investment
property, you can’t buy the investment property with your self managed super fund.
There ARE some more flexible rules around commercial investment properties
where if you’re solely using it to conduct business,
you may be able to acquire it using your self managed super fund.
The next thing we need to talk about is whether you can borrow money
when buying an investment property using your self managed super fund.
Generally speaking, you need to think about a few things if you’re considering borrowing money:
The fund needs to have an existing minimum balance of $120,000 to be able to buy property.
You need to make an annual contribution of at least $15,000.
Banks usually charge a higher interest rate on loans through your self managed fund.
Most banks require that the fund has at least 30% of the value of the property
available to use as a deposit.
There are also more complicated matters in relation to setting
up a separate property trust as part of limited recourse borrowing arrangements,
but it’s best to speak to an experienced accountant regarding this.
So what are the consequences?
One of the biggest benefits is that you’d only be taxed 15% income
tax on the rental income from your self managed super fund-owned property.
Number 1 - For high income earners who are potentially facing 45%
marginal tax rates, this is a massive saving.
Number 2 - If the fund holds the property for longer than 12 months,
you’ll also qualify for capital gains discounts when you sell the property of only 10%.
Number 3 - You can also further reduce your capital gains tax liability by ordering one of
our capital gains reports, to make sure you factor in all your capital expenses into your cost base.
Number 4 - when you retire, any rental income the fund earns will be tax-free.
Number 5 - if you borrowed money to buy the property through your fund,
the interest payments are tax deductible to the fund.
And the most frequent question we get from investors who are looking to use their self
managed super fund is: Can you claim depreciation on a self-managed super fund property?
And the answer is yes!
So there you have it,
the 5 biggest tax benefits of investing in property through a self-managed super fund.
There’s an incredible amount of responsibility
when it comes to managing a self-managed super fund.
So we always recommend working with an experienced
accountant who can help you navigate the complex regulations set in place.
If after that, your advisor believes there’s a great opportunity to invest in property,
then there can be some pretty big tax benefits available to you.
And if you do that, be sure to get in touch with us at Duo Tax Quantity Surveyors
so that you can maximise your tax depreciation as soon as possible.
Finally, if you have friends, family or a colleague who would benefit from this,
be sure to share this video with them.
I’m Tuan Duong, hope to see you guys next time.