Why use a SMSF to buy property?
Fund manager Fees can be a thing of the past when you run your own SMSF. You're in charge, but remember accountancy and other fees may apply.
Income and capital gains tax is treated favourably in superannuation. Income is taxed at a flat rate of 15%, compared to your marginal tax rate that can be as high as 45% plus Medicare levy (post 2017)
Ramp up your returns
Gearing (Borrowing to invest) can significantly improve returns above that of the underlying asset class.
Want to know more?
- What is a SMSF
- Save Fees
- Save Tax
- Ramp up your Returns
Self Managed Super Funds (SMSFs) can be great way of saving for your retirement. SMSFs give people full control of their investment decisions, but comes with the added responsibility of understanding and meeting all legal requirements. If you set up an SMSF, you are personally liable for all the decisions made by the fund, even if you get help from a professional or another member of the fund. Unlike other super funds, SMSFs allow direct investment into both residential and commercial property. SMSFs allow up to and including four members, so you may also be able to band together with family members or friends to purchase investments that would otherwise be our of reach.
Fund Manager Fees can be a thing of the past as you are now in control. While it is worthwhile checking how much you might save in fund manager fees and potentially advisor fees, it is also worthwhile you understand other fees that you will now be paying. With a SMSF you will have Accountant Fees, Auditor Fees, and ASIC fees to name a few.
Income tax - a flat rate of 15% applies, this should be compared to your marginal tax rate that could be as high as 45% plus Medicare levy (post 2017).
Contribution Tax - most people receiving their statement from a retail or industry fund will see employer contributions going in and 15% tax being applied for your contributions. Inside your SMSF you may be able to reduce your contribution tax to zero. Why is this? Contributions into your SMSF are included with the other income of the fund. The fund is only taxed after calculating the income less expenses of the fund. Deductions for depreciation, insurance cost etc could mean that you could reduce the income of the fund to zero and avoid paying contributions tax.
Capital gains - is taxed at a flat rate of 10% within superannuation. But once you retire capital gains cease to exist. If you decide to sell your property once your in the pension phase, there will be no capital gains tax applied. This could literally save you thousands.
The Association of Superannuation Funds of Australia published the average 10 year rate of return to 30th June 2016 was 5.2% (other funds)
Unfortunately, there is no such thing as a single property market so I have not provided comparisons. Each capital city has varied wildly in the growth received in the past 10 years and gross rental yields also vary wildly. It is important that you make an informed educated decision and remember past returns do not equal future returns.
Steps to Purchasing a property with Borrowings
- Obtain advice to see if a SMSF is right for you
- Establish your borrowing capacity - (we can help with this)
- Setup your SMSF - (Normally undertaken by your accountant)
- Apply for pre-approval of your loan - (we can help with this)
- Set up your bare trust and trustee - Accountant
- Sign a contract to purchase
- Obtain Final Loan Approval
- Have your solicitor finalise settlement
Why Choose Mango for your SMSF borrowing needs
At Mango we have years of experience dealing with SMSFs. We can help you understand the pitfalls and guide you around the complex maze of superannuation legislation.
We can also help you whether you decide to invest in Commercial or Residential property. We can also provide side by side comparisons of the upfront and ongoing costs to help you make an informed decision.
At Mango Money we have the largest range of lenders and we negotiate with lenders to get a great rate for you. Also on an ongoing basis, we will review your loans regularly to make sure they meet your needs and stay competitive.
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