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SMSF Opportunities with Property

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Presentation on theme: "SMSF Opportunities with Property"— Presentation transcript:

1 SMSF Opportunities with Property

2 WHO ARE THE 2020 GROUP? For those of you who don’t know us..
We are an affiliate partner of Starr Partners. We are an independent, free thinking, Multi disciplinary firm, made up of Accountants, Solicitors, Financial Advisors and other specialists.

3 OUR SERVICES Accountancy Investment Solutions Insurance Solutions
Mortgage Broking Conveyancing Self Managed Super Super & Property Estate Planning Legal Solutions

4 PRICE VERSUS COST Outside Super Price (Net income) $100.00 Tax (46.5%)
$87.50 Cost (Gross Income) $187.50 Inside Super Price (Net income) $100.00 Tax (46.5%) $18.00 Cost (Gross Income) $118.00

5 SEMINAR PURPOSE The purpose of this seminar is to educate you that you now have a choice to be able to create real wealth for your family using an SMSF. Surrounding ourselves with good advice and people who provide good advice is an important part of this process of achieving real choice and moving towards financial freedom.

6 KEY ISSUES Why purchasing investments inside of superannuation is often a better fit – due to the significant tax advantages that exist – than the traditional way of purchasing assets outside of super in your own name, a company, or a trust. I will demonstrate 3 significant advantages. Lower tax, better cash flow, more safely protected investments.

7 KEY ISSUES CONT. We will provide details on how Superfund's and more specifically how SMSF’s can borrow. We will show you how an Average Australian Family with potentially as little as $100K in Super can leverage into the property market and how this property(s) may be a self sustaining investment that you may never pay any lump sum tax on.

As Australians, we tend to have a love affair with property. We prefer bricks and mortar to equities, it makes us feel safer. For example, how many of us avoid salary sacrificing into super because we don’t have true control of our super. We know that contributing to super is a good thing but its a hard thing to force ourselves to do when our super is locked into the market and the market is so erratic.

We can have our cake and eat it too by owning property in our own family super fund. How many of you knew you could buy property in your SMSF and borrow against the security of that property? As a result, we have been explaining the structures and strategies surrounding SMSF borrowing for Property to Australian Families for almost 4 years now.

By taking control of their super and setting up a Self Managed Super Fund (SMSF). Buying property through your SMSF not only enables them to leverage their current superannuation assets, it also provides the added benefits of both asset protection and tax efficiency.

A SMSF is the clients very own super fund in which they are in control of. They have the cheque book and with the help of their accountant or advisor run the fund and make decisions on suitable investments.

12 ASSET PROTECTION Assets in a Superannuation fund can protect those assets from commercial and litigation risks that may otherwise face the members.

The simple answers are: Is that you now don’t need to have the available cash in your fund to obtain an interest in a long term investment asset class such as property. Up until the recent changes in SIS, many superannuation portfolios were devoid of the many potential benefits of direct property investment due to their inability to borrow property.

14 As a result, many Australians have had no choice but to invest in real estate outside of the tax-efficient superannuation domain and had lacked the ability for their superannuation portfolio to potentially generate greater returns through a geared SMSF investment strategy. SMSFs may now borrow up to 75% for some property purchases. By super gearing the real rate of return will increase. For example, a 5% yield and 5% capital growth pa equates to a real gross return of 40% pa in your SMSF.

15 HOW DOES IT ALL WORK? The choice of property is purchased in name of the trustee of a bare trust that is setup with the client in control as trustee Directors. This trust is the legal owner of the property. The SMSF is of course the beneficial (or real) owner of the property.

16 Money to purchase property
STRUCTURE Mortgage of Property LENDERS INSTALMENT TRUST PROPERTY SMSF Legal Ownership Limited Recourse Loan (LRL) Personal Guarantees (Commercial Lenders) SMSF beneficial owner of property and entitled to income from the property Money to purchase property SMSF money & LRL

17 LEGAL ISSUES The Lender who lends your SMSF the funds is granted a charge over the SMSF’s beneficial interest in the property, this is a limited recourse loan and does not subject other property or assets as security for the loan.

18 CASE STUDY James is 45 years old and earns $70K p/a and his Industry Super Fund balance is currently $50K. Jill, James’ wife, is also 45 and earns $30K p/a. Her industry superfund balance is also at approximately $50K.

19 They wish to purchase an Investment Property (Cost $350K)
James & Jill’s Property Options 1: Negative Gearing or 2: Limited Recourse Scenario Property is sold in 10 years for $700,000 The Facts Negative Gearing Effect: Tax payable on sale: $100,000 LR Effect: Tax payable on sale: Nil

20 THE RESULTS $100K better off by choosing option 2 if property is sold after age 55.

21 PRICE VS. COST Price vs. Cost Outside SMSF Inside SMSF
Purchase Price (of Investment Property) $500,000 Deposit (Price) $140,000 Deposit (Cost) $261,682 $164,706 Loan (30 Years) $360,000 Total Repayments (Price) $302,060 Total Repayments (Cost) $649,592 $355,365 Total Cost $911,275 $520,071 Advantage $391,203 Property Value $1,000,000 1,000,000 CGT $116,250 Overall Advantage $507,453

Based upon unbiased opinion i.e. shares and property return the same over the longer term, let’s take a look at the following scenario: You take $1 of superannuation as secure leverage to purchase property, the bank lends you an additional say $3, so you buy a $4 property. In 10 years the property doubles, you take your $8 and pay the bank back $3 and you are left with $5. you have turned your $1 into $5 a 500% return over 10 years.

23 Let’s compare and contrast this with shares, where the bank/financier will only lend dollar for dollar against the security of shares. So, you are able to buy $2 worth of equities, and they double in 10 years and you are left with $4, you then pay the bank back the $1 you owe it. You are left with $3. You can clearly see that it is the leverage by using a long term secure growth asset such as property that has provided up to an additional 200% return on our money in this example.

24 Get more skin in the game!
With the purchase of a long term growth asset of your choice, by taking control of your existing super. Increase the real rate of return on your super by leveraging. Super gearing rather than negative gearing is good debt. Take on good debt in super as opposed to negative gearing, where you fund a loss.

25 Let someone else pay off your loan
Let someone else pay off your loan. Use a combination of the rent on the property and your SGL (if a PAYG earner) to pay off the property. Salary Sacrifice for further benefits and to build a surplus of cash in the fund and continue to accumulate suitable assets in a SMSF. Leveraging with Property in your super fund can be substantially better than leveraging into equities, based on both asset classes achieving the same positive return. Banks will lend at a higher LVR for property. Pay a lower than 15% tax rate on super contributions, even nil.

26 Quarantine any capital gains on investment assets to nil
Quarantine any capital gains on investment assets to nil. Purchase now and sell after age 55, no tax. There is a maximum of 10% capital gains tax on the sale of your property if it is held for over 12 months in the accumulation phase i.e. sell prior to age 55. Build up a portfolio of assets that will work for you in retirement – no tax on the earnings or growth of assets held in super after age 55.

27 Quarantine any capital gains on investment assets to nil
Quarantine any capital gains on investment assets to nil. Purchase now and sell after age 55, no tax. There is a maximum of 10% capital gains tax on the sale of your property if it is held for over 12 months in the accumulation phase i.e. sell prior to age 55. Build up a portfolio of assets that will work for you in retirement – no tax on the earnings or growth of assets held in super after age 55.

28 BENEFITS OF AN SMSF By salary sacrificing into your SMSF, you effectively receive a 100% tax deduction at your full marginal rate of tax on contributions made up to your contributions cap (note: salary sacrifice contributions may be subject to up to 15% tax. The interest expense along with other property related expenses including any depreciation allowance become 100% tax deductible within the superannuation fund and may potentially reduce the amount of your 15% contribution tax to NIL. This is not possible in a non SMSF super structure.

You may potentially receive a more tax effective retirement income as compared to property investment held outside of superannuation as once you are over the age of 60, there is ZERO TAX on withdrawals and pension income from your superannuation; Your SMSF, as the beneficial owner of the property asset, enjoys the Land Tax Free Threshold in each Australian State.

30 HOW IT WORKS 1 Preparation of a Statement of Advice 2
Set up a SMSF and trustee company 3 Set up the legal owner of the property, the Bare Trust 4 Find the right loan 5 Find a property that matches your selected criteria 6 Draft the LR Agreement 7 Vetting of commercial loan documents 8 Conveyancing team complete conveyancing and attend to settlement

31 OUR PROMISE TO YOU We will present to you within seven days of our initial meeting our expert analysis and opinion of your current situation and guide to the future ‘journey’ we believe you should take.

32 Is it time perhaps that you arranged a free, no obligation consultation with out strategic advisors?
Have you ever thought.. Is my current accountant providing me with a complete financial solution? Would you like a second opinion? Do you see the opportunities and want to take control? Do you want to build wealth through tax effective structures Do you want to investigate all your retirement options?

33 THANK YOU We hope this seminar has been of some benefit to you and perhaps opened your mind to the possibilities that exist with strategic planning. The opportunity is yours for the taking! We further hope that you may consider forming a strategic alliance with our firm and that we may be of assistance to you in the future.

34 DISCLAIMER Although all care has been taken to provide the most up to date information, no guarantee is given as to the accuracy of this information. These examples shown herein do not constitute financial advice of any kind. They are provided solely for the purpose of illustrating and contrasting the effects of using super as a general strategic strategy.

35 ACT NOW 1800 46 2020 Thank you for attending our seminar.
For further information please contact our office

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