SMSF or Self Managed Super Fund is a private super fund that you manage yourself and is the best way to secure and save up for your retirement. SMSFs give their members (maximum 4) control, flexibility and choice over how their retirement savings are invested. As per Australian Taxation Office (ATO), there are nearly 600K SMSFs in Australia and more than 1.1 million Aussies are members of these funds, as of November 2021.
Investing in property through SMSF can have many advantages. Below, we’ve listed the top 3 of them for you.
1. Concessional tax on future capital gains-
Special superannuation tax rates apply to any capital gain made as a result of an increase in the property’s value. As a result, depending on when you decide to sell the property, any capital gain your fund makes on the sale of the property may be completely tax-free.
To give you a gist, if you sell the property while still in the “accumulation” phase, the fund will generally pay CGT of up to 10% on any growth in the property value assuming that the property has been owned for at least 12 months). On the other hand, if you decide to sell the property after you have transferred it into the “pension” phase, within your SMSF, any capital gain will be exempt from tax altogether!
2. Concessional tax on rental income-
Where you hold an investment property in your own name, tax will broadly be payable based on your personal rate of tax, which could be as high as 46.5%. Similarly, if you were to hold an investment property through a company, the tax rate is 30%, Due to the concessional tax rate that applies to superannuation investment earnings, rent received by your SMSF will be taxed at a maximum rate of 15%, considerably lower than when it’s owned by the company or in your name. And, because certain expenses related to the ownership of the property such as land rates, property maintenance etc will generally be tax deductible to the fund – the effective tax rate may come down even further.
3. Increased superannuation opportunities-
In addition to the above, where the property owned by your SMSF is the property from which you run your own business, superannuation rules require your business to pay a commercial rate of rent to the fund – providing you with a way to accelerate your superannuation savings. The rent that your business pays into your SMSF will be tax deductible to your business, but more importantly for superannuation purposes, it will not be treated as a superannuation contribution. Because the tax benefits available on superannuation contributions are currently limited to $27.5K a year, for all individuals regardless of age, the ability to make tax deductible rent payments into your superannuation fund – without this rent counting towards these limits – enables you to build your retirement benefits quicker and tax efficiently.
In addition to these above 3 lucrative benefits, SMSF can have many other benefits depending on your personal circumstances. Superannuation assets are generally protected from creditors in bankruptcy situations. So, in the unfortunate event that you fall on difficult times, holding property within your SMSF may provide you with some added protection.
Further, if you are a small business owner, superannuation assets are not included when determining your eligibility for the generous small business CGT concessions that apply when you sell your business or retire. By planning ahead, you can ensure that you better qualify for these concessions.
If you too are looking to invest in property through SMSF, thanks to its numerous benefits, connect with our property consultants and get all the help and advice you need! Get with us at at 02-81230180 or dropping us an email at email@example.com
Disclaimer – This is general advice and it varies as per the situation . Please discuss with your financial planner or accountant before making any decision.*
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