“To achieve your retirement goals, your investments need to be aligned with a long-term plan.” – Jason Roccasalvo, TAG Partner
Investing in property can be a great way to finance your retirement. But what’s the difference between buying property in a self managed super fund (SMSF) versus buying property in your individual name? Will you be better off buying property in your superannuation?
We have outlined the key benefits and drawbacks in buying property in SMSFs.
Benefits
Tax Effective
Superannuation receives concessional tax treatment on assets, where earnings within the SMSF are taxed at 15%, and capital gains at 10% for assets held more than 12 months. If you hold onto the property until retirement, the earnings may be tax-free.
Pre-Tax Repayments
You can salary sacrifice additional income to super and pay off your loan faster. Additionally other superannuation income (and liquidity) can be used to pay off the loan.
Buy your Business Premises
If you are a business owner, you can use your super to invest in property that can also be used in your business.
Combining Investing as a Family
By combining your superannuation account balances with other members of your family, you may be able to invest in a larger asset.
Lender
You don’t need to use a bank/lending institution. Cash permitting, you (or an entity you control), can lend to the fund. The ATO places minimum standards on these types of loans.
Drawbacks
Lack of Diversification
Having all your eggs in one basket can make it difficult when you need cash from your superannuation fund.
Set Up Costs
You need to consider SMSF set up costs and higher interest rates when getting a loan through your SMSF, and balance these costs with the cashflow, tax and wealth creation benefits.
Arm’s Length Investment
The investment property must be purchased at ‘arm’s length’ on a strict commercial basis. If the investment is a residential property, you cannot purchase from, lease to, or rent to a elated party.
Cash Flow Certainty
Ensure your level of SMSF contributions and rental income are enough to cover all costs.
What should you do now?
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Please do not reproduce without the expressed written consent of the author.