Property an untapped opportunity for self-funded retirees
RETIREES buying property through a Self Managed Super Fund (SMSF) could potentially save thousands in tax if they invested wisely, a leading authority on self-managed funds said.
Opez chief executive Cindy McDonald said market conditions had fuelled a surge in inquiries from people wanting to better understand how they could maximise their ability to buy property via their self-managed fund.
"Since changes in superannuation were introduced in September 2007, a SMSF can now borrow to buy assets, including property,'' Ms McDonald said.
"It can be an effective way of investing for retirees, but it's important they understand how property can be used and when they can effectively access the capital that's tied up.''
There were still many misconceptions about what SMSF could invest in.
"We often have clients tell us their financial advisers have either told them they can't buy property, or if they can, it must be income/producing, or a particular type of property and this is mainly because not enough advisers understand the legislation,'' she said.
Investing in property with SMSF was attractive because of the number of tax concessions. "Income derived on a property pays tax at 15 per cent, or 0 per cent where the fund is in pension mode, which means more after-tax dollars are generated,'' she said.
"And when the property is sold, the maximum tax on any capital gain is 15 per cent, or 10 per cent if the asset was held longer than 12 months before the sale, and 0 per cent if it's sold while the fund is in pension mode.
"Add to that, the tax-free pension that can be paid out to members who are aged 60-plus, and its a pretty hard combination to beat,'' she said.
The tax breaks are considerable, and are an incentive for people to use SMSF to buy property.
Ms McDonald said understanding some governing rules, such as what the SIS Act and regulations required from a SMSF, was the key to building a successful fund. "The Sole Purpose Test underpins the whole super system. "The purpose of your SMSF must be to provide you or your beneficiaries with retirement benefits and this should be taken into account when deciding on your investments.''