A su­per prop­erty idea

There are ben­e­fits to in­vest­ing in prop­erty through self-man­aged su­per funds — but be wary of traps, too, writes Ben Hyde.

The Advertiser - Real Estate - - House Hunter -

IN­VEST­ING in prop­erty through self-man­aged su­per­an­nu­a­tion funds is on the rise as more peo­ple tap into the po­ten­tial tax perks it of­fers. In­dus­try ex­perts say this form of in­vest­ment has in­creased since changes to self-man­aged su­per­an­nu­a­tion fund leg­is­la­tion in 2007 al­lowed in­vestors to gear funds for prop­erty in­vest­ment.

Prop­erty in­vest­ment ser­vices firm Iron­fish sales man­ager Mark Losasso says the ad­van­tages of in­vest­ing in prop­erty within a self-man­aged su­per fund in­clude sig­nif­i­cant tax ben­e­fits.

‘‘If struc­tured cor­rectly, there is no cap­i­tal gains tax on a sale af­ter you re­tire,’’ he says. ‘‘You need to in­vest be­fore you re­tire . . . and sell af­ter you re­tire. The rate of re­turn that you can achieve on your self-man­aged su­per fund can be very favourable.’’

Mr Losasso says once a self­man­aged su­per fund is set up, in­vestors can use a pro­por­tion of those funds as a de­posit on an in­vest­ment prop­erty.

He says that while banks have dif­fer­ent re­quire­ments, a 28 to 30 per cent de­posit is gen­er­ally re­quired.

‘‘While some say a min­i­mum of $100,000 in your ex­ist­ing su­per fund is re­quired to get started, the ATO rec­om­mends a min­i­mum of $200,000,’’ he says. Mr Losasso says the in­creas­ing preva­lence of the in­vest­ment form has re­sulted in cheaper set-up costs.

PKF Fi­nan­cial Ser­vices part­ner Tony Sim­mons says the changes to leg­is­la­tion have opened po­ten­tial but there are things to be wary of.

‘‘Gear­ing pro­vides you with an abil­ity to buy some­thing you couldn’t nor­mally buy within a su­per fund,’’ he says. ‘‘You have to be care­ful about how you deal with death ben­e­fits. There can be some tricks with hav­ing to find money to pay the in­ter­est and also pay­ing a pen­sion or lump sum to the sur­viv­ing spouse.’’

HLB Mann Judd part­ner Bruce Wi­gan says gear­ing a self-man­aged su­per fund is ben­e­fi­cial but in­tri­cate.

‘‘If un­der­tak­ing a bor­row­ing ar­range­ment the rules are com­plex, can be ex­pen­sive to set up cor­rectly and higher-than-nor­mal in­ter­est rates usu­ally ap­ply,’’ he says.

‘‘There are some re­stric­tive rules but by bor­row­ing it al­lows the self- man­aged su­per fund scope to in­crease avail­able prop­erty pur­chases.’’ Mr Wi­gan says ben­e­fits ex­tend be­yond not pay­ing cap­i­tal gains tax on the sale of prop­erty once a fund has started its pen­sion stage.

‘‘As­sum­ing the prop­erty is kept for at least 12 months, if a self-man­aged su­per fund sells the prop­erty the max­i­mum rate of cap­i­tal gain tax is only 10 per cent,’’ he says. ‘‘The other ben­e­fit is that if the fund has com­menced a pen­sion, all rental in­come re­ceived will be ex­empt from in­come tax.’’

But Mr Wi­gan urges cau­tion when tack­ling such an in­vest­ment.

‘‘Bor­row­ing for prop­erty through a self-man­aged su­per fund is a very com­plex ar­range­ment and can be very costly,’’ he says. ‘‘If not done cor­rectly there could be bad un­in­tended con­se­quences, such as dou­ble stamp duty and dou­ble cap­i­tal gains tax. Be­fore em­bark­ing on this ex­er­cise seek pro­fes­sional ad­vice.’’

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