Superannuation Property Borrowing

Transcription

1 Superannuation Property Borrowing Samuel Mantarro Principal & Senior Advisor CFP 1

2 Disclaimer This presentation is for general information only. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees. While all reasonable care is taken in the preparation of this presentation, to the extent allowed by legislation Crowe Horwath Financial Advice Pty Ltd accepts no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice by Crowe Horwath Financial Advice Pty Ltd. Crowe Horwath Financial Advice Pty Ltd assumes no obligation to update this presentation after it has been issued. Crowe Horwath Financial Advice Pty Ltd is a member of Crowe Horwath International, a Swiss verein. Each member firm of Crowe Horwath is a separate and independent legal entity. Crowe Horwath Financial Advice Pty Ltd and its affiliates are not responsible or liable for any acts or omissions of Crowe Horwath or any other member of Crowe Horwath and specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any other Crowe Horwath member. Crowe Horwath Financial Advice Pty Ltd is the holder of Australian Financial Services Licence number ABN

3 Agenda What is an SMSF? Pro s and cons HOT conversation topic; Super and property! Property in Super Why would you? How much can I spend? Show me one Questions 3

4 How Does a SMSF Work? Establishment of the Fund SG Employer. Contributions CC, NCC Rollovers Investment Earnings Income & Growth Audit Your Self Managed Super Fund Tax Planning & Management Tax? Member Benefits Retirement payments Death Benefits Estate Planning Administration & Compliance Investments, Retirement Planning, & Insurance 4

5 Superannuation The Phases SUPER FUND Accumulation Phase Pension Phase 5

6 Superannuation Accumulation Phase SUPER FUND Accumulation Phase Pension Phase Concessional Contributions <50 = $25K p.a. >50 = $30k p.a. 15% tax Non-Concessional Contributions $150K p.a. or $450K for 3yrs 0% tax 6

7 Superannuation Taxation SUPER FUND Accumulation Phase Pension Phase Income 15% CGT 10% 7

8 Superannuation Pension Phase SUPER FUND Accumulation Phase Pension Phase Accessibility three key ages 55, 60 & 65 Minimum Annual Drawdown e.g. age = 4% p.a. 8

9 THE SUPER & PENSION SYSTEM What s it all about? SGC + Salary Sacrifice Personal 15% Contributions Super 0% Pension 9

10 Superannuation Taxation SUPER FUND Accumulation Phase Pension Phase Income 0% CGT 0% Personal Tax 55 60yrs Assessable >60yrs = 0% tax 10

11 Greater Pension Flexibility PENSION PHASE TRANSITION TO RETIREMENT ACCOUNT BASED 11

12 Pre-retirement planning: Pensions and Income Streams Account Based Pension (ABP) Can be started once you reach your preservation age Upon retirement Purchased with superannuation monies Transition to Retirement Income Stream (TRIS) Can only be started once you reach your preservation age No requirement to retire Purchased with superannuation money Access to the account balance at all times Flexible level of income (subject to annual minimum, no maximum) Lump sum withdrawals (commutations) generally not allowed Prescribed minimum and maximum limits of income (4% and 10%) 0% tax on income and capital gains 12

13 Who Does a SMSF Suit? Super balance $250,000+ Self employed & family business owners Medium to high income earners Retirees 13

14 Factors Influencing Growth In SMSFs Investment experiences Ability to invest in property Ability to borrow Favourable tax benefits Beneficial legislative changes in relation to income streams Flexibility and tax effectiveness of estate planning and life insurance 14

15 Advantages of a SMSF Control Choice Flexibility Economy of scale Tailored strategies Estate planning Taxation benefits 15

16 Disadvantages of Managing Your Own SMSF Greater responsibility Keeping up with legislation Extra paper work Time consuming 16

17 INVESTING IN PROPERTY SUPER Why Would you? MTR v Super tax rate Bankruptcy Protection Use your built up Super monies Buy a BIG asset now & pay it off with future contributions. Get more into Super than the contribution limits Buy tomorrow s house today. Sell today s house tomorrow. Is it a better investment than what I have now? IMPORTANT: These are highly specialised and require careful planning and advice. 17

18 What structure do I need when borrowing in super? TRUSTEE. Guarantee? Lender o Buy Property In Super Can be commercial provider or related party Super Fund Rental income stream $$ Special Trust Custodian Nominated owner prior to settlement Commercial or Residential Property 18

19 Some Property Considerations You cannot live in it, but your business can. Residential, Commercial.all OK. Yield (Rent) Vs Capital growth Repairs, Renovations, CHANGE IN FUNDAMENTAL FABRIC How much CAN the fund borrow? How much SHOULD it? Type and Term of loan to be used. Similar to outside super. Expenses, running costs and how to pay for them? When (and how) will I pay the loan back? Eventual Sale (when)? BEWARE of the BUS The SMSF should be protected Timing Does it work in my planned retirement timeframe? 19

20 Road Test Keeping it Simple ASSUMPTIONS: Billy Smith earns $80K pa. $400K Deposit on $1M property (say Commercial) i.e. 60% Geared 5% pa. Income 4% pa. Growth 7% pa. Interest 10 Years For simplicity, ignores Depreciation allowances etc. Specific calculations are required before making ANY decisions. RESULTS: Personal Super Pension - Tax on the Rent $80K $33K NIL - Tax on Property Sale $93K $42K NIL IMPORTANT: Tax Benefits whilst in Negatively Geared situations will affect the numbers for ALL scenarios: - Non Super will benefit more in earlier years (less in later years). - Super Contributions Tax (15%) can be reduced in SMSF scenario. 20

21 What Will You Need? SMSF (with updated rules) Got $ in it and maybe future $ going into it. Special Trust structures Loan. Competitive interest rate. Investment Strategy Documented. A real one. R.M.S. Protection for the SMSF (what if member dies to soon??) ADVICE SIGN OFF for the Bank (beware ATO draft Ruling). 21

22 Get Good Advice The Govt. Wants You To! Not everyone knows what they re doing. If you get it wrong, TAX, STAMP DUTY and SMSF PENALTIES can apply. Breach of S67 SISA = up to $220K fine PLUS N.C Fund. Changes in Regulations to Protect the Consumer. Special LICENCE required to give advice ASK FIRST. Use someone who is keeping up with this stuff. 22

23 Indicative Costs and work involved STAGE 1 (BEING READY TO LOOK FOR A PROPERTY) $3,900 + GST Information gathering and exploration Modeling, Calculations, Cash flow scenarios etc. Loan Pre- approval. Formal Statement of Advice for recommendations. Provide Financial Planning letter to Lender. Rollover existing Super and make additional contributions (if necessary). 23

24 Indicative Costs and work involved STAGE 2 (BEING READY TO BORROW THE MONEY) $4,000 + GST EXTERNAL COST Will be less if got some structures already. Engagement of Specialist LRBA Solicitor to provide the following: Establish / Update Self Managed Super Fund. Establish Corporate Trustee for SMSF Establish Special Trust structure (Bare Trust) Establish Corporate Trustee for Custodian structure Resolutions for the Self Managed Super Fund Trustee and Custodian Complete and execute all necessary documentation correctly. Preliminary Draft Investment Strategy documentation 24

25 Indicative Costs and work involved STAGE 3 (BUYING THE PROPERTY - MAKING IT HAPPEN) A FLAT Fee Not hourly Fees ** $3,500 + GST Project Manage the process through to settlement, including: Coordination of all parties involved in the process, ensuring timely and accurate execution of all stages. Liaise directly (on your behalf) with all other professionals including Accountant/Tax Adviser, Solicitor, Finance Brokers, existing Financial Planner, Conveyancer, SMSF Administrator etc. Source and provide all required information/documentation to each party as required. Prepare Final Investment Strategy and necessary minutes of adoption. Risk Management Statement Regular meetings/contact with client on progress reports etc. Conduct 'Wrap Up' final meeting with client and copies of necessary doc s. ** additional charges will apply to Related Party Borrowing Arrangements 25

26 Other Potential Costs OTHER POSSIBLE COSTS & COMPLICATED SCENARIOS Scenario Fees Lending & Finance (bank lawyers, bank fees, valuations etc): Normal applies Conveyancing (not included): PAYG More complicated Related party borrowings (Indicative Only): o Legal s and structures Add $1,500 o Formal Tax and structuring advice Hourly fees o Financial Planning advice Add $800 o Lending & Finance Hourly fees o Management of Process Hourly Fees 26

27 Alternatives to borrowing in super? A number of alternative structures to consider when looking to own property in super, these include: Non related Unit Trust Control and ownership rules Could borrow 13.22c ungeared Unit Trust Related Unit Trust Pre 99 Unit Trust. 27

28 What Are The Next Steps? Crowe Horwath can provide an end to end solution for peace of mind OR the starting point to determine if viable for you. This starts with your financial planner, who can draw on key Crowe Horwath resources: Formal Taxation advice Lending and finance advice SMSF Administration SMSF Audit.. 28

29 Any Questions? Questions? 29