The purchase of investment Property in your own name Have You Considered Utilizing Your Superannuation Fund?

Utilizing negatively geared properties has been a popular choice for Australians to make money for many years - and it is obvious why when you consider evidence-based capital growth, the possibility of borrowing money to finance purchases of property and a nice big tax rebate at end each y

Utilizing negatively geared properties has been a popular choice for Australians to make money for many years - and it is obvious why when you consider evidence-based capital growth, the possibility of borrowing money to finance purchases of property blue world city islamabad and a nice big tax rebate at end each year.

But is this strategy still an option that is viable now that SMSFs can use their funds to acquire residential and commercial property? This article will analyze every strategy and provide insight to enable you to make a better decision on the subsequent (or perhaps your very first) acquisition of investment properties.

First Match Finance:

To finance the purchase of an investment home, you are likely to require borrowing. This will mean paying an oath to the banks. In Australia the market for home loans is dominated by major players - and in regards to the loans available to SMSFs it is no different. The top three players is Westpac, NAB and St George. CBA also offers a loan product - however it is more restricted than the others.

The LVRs available when obtaining an SMSF loan compared to a typical investment property loan are a little lower - typically being 72% - 75 percent for residential properties and 65% for commercial properties. This means you'll typically need a larger amount of money to purchase a property through an SMSF - however most people this is not going to be a problem since likely you will have more funds in your super, rather than in your savings account.

In addition to the smaller LVRs, the establishment charges and the legal fee charged by banks are substantially higher for a SMSF loan compared to the typical investment property loan. The additional cost can be offset by the extra superannuation funds you have available - i.e. you don't have the obligation to fund the cost out of your own pocket.

Concerning the lending aspect, borrowing with an SMSF is almost always higher than an ordinary purchase property loan, both as regards the setting up.

Negative Gearing 1 SMSF: nil

There is a compromise here however. If you have the equity in other properties to fund one or more of the loans the SMSF requires to complete the purchase of a home, you can become the lender and loan to the SMSF. This is known as'member financing' and can be used in place of or complement to financing from banks. This approach significantly lowers costs of borrowing.

Second Match Taxation:

You might be considering what the tax implications are when comparing negative gearing to the SMSF buying a similar property? It's this way The property is negatively geared when the total taxable earnings from the property is lower than the amount of deductable expenses related to it.

For instance, if your negatively priced property was costing you $200 more per week, over one financial year your overall income tax deduct (negative rental earnings) will be approximately $10,000. If your marginal income taxes are 30% plus 1.5 percent Medicare you can anticipate a tax refund of approximately $3,150 by the end of the year. In the end, you're still paying around $7,000.

If a home with similar costs was owned by your SMSF then you may be able to sacrifice the equivalent of $200 of your pre-tax earnings to cover loan repayments and other property related costs. There is no tax on the income you earn from you salary sacrifice, so when the amount you sacrifice is greater than $10,000 in a calendar year, similar to the example above, your tax savings are exactly the same, but instead of paying the ATO each week and receiving a refund at the end of the year, you don't have to pay tax on that amount to begin with.

Now, as you may have guessed, concessional contributions from employers like payroll sacrifices to super are taxable by Super fund owners at 15%. However, the SMSF is also entitled to the same deductions as the property you own - meaning there will be no tax consequences.

When you look at these strategies in the same week, the tax impact is identical. However, when it's time to sell the property and make the capital gain the SMSF is the winner in every way. Should the residence be held more than 12 months it is the SMSF contributes 10% of the capital gain - so if the property was sold at a price of $150k higher than what you paid for it, the SMSF would pay $15k capital gains tax. For comparison, if you had the property in your name and you have wages earning $80k, the tax and Medicare to be paid would be below $30k.

But wait - there's more! If you keep the property over a long period of time within your SMSF and commence a pension when you turn 55, the entire income (such rental) as well as capital gains on assets used to support that pension (such such as the home) are tax exempt. If $15k tax is more than tax of $30k and you are able to pay no tax, then that could be your Holy Grail.

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