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.
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.’’