SMSF Instalment Warrants

Australians have a love affair of property. We all would love to support our families future and own a portfolio of investment properties.
But how many of us know we can actually leverage off our own family super balances and pool funds into a family wealth creation structure; called a Self
Managed Super Fund? We often think of our super as being something we can’t control. Usually your super is invested in the share market which as we know goes up and down in an often frustrating manner.

However, the average Australian can take control of their super by setting up an SMSF, your very own super fund. With this type of super fund; you have the cheque book and with the help of your accountant or advisor run the fund and make decisions on suitable investments, such as your property of choice.

We often feel more confident investing in real estate, but until recently the rules had restricted us using our super to buy property, unless we had enough dollars in super that we could afford the full purchase price of a property.

Now, under the new rules, Superannuation funds can invest in direct property without the need to have accumulated the full purchase price.
This rule change represents an exciting opportunity for well advised individuals to leverage into property through their existing superannuation. So you don’t actually need to have the cash in super to afford the purchase.

Your SMSF can borrow directly up to 70% from the lender to buy your choice of property. A competitive advantage may exist when purchasing through an SMSF. It’s called super gearing rather than traditional negative gearing.

Important Points to Note

• Super gearing has it all over negative gearing, you can actually buy a property at a lower cost in a SMSF than in your own name.
• The cost of property purchased is lower in super.
• No CGT on sale (when you are aged over 55 and sell an asset).
• Tax free income from rent after age 55 to the fund and paid to you as an income stream from your SMSF.
• Pay the loan off quicker without a cent of your own money or cashflow; using your SGL and the rent from the property.
• You may never pay tax on the sale if you follow some simple advice.
• Ability to dilute the 15% super contribution tax rate by making a paper loss on property.

SMSF Instalment Warrants

The lender has no recourse to the other assets of the SMSF, providing the SMSF with absolute protection from it’s other assets.

Your SMSF can deal with the property however and whenever they like, in the same way as investors can deal with ‘normal’ investment properties (e.g. lease, renovate, repair, or sell) (subject to terms of relevant loan & mortgage). All rents are paid direct to the SMSF. 

Loan repayments are made in the ordinary way by the SMSF.

The SMSF can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan).

When the mortgage is paid out in full, the property title can be transferred to the SMSF or the bare trustee can continue as registered proprietor.

No CGT will trigger on the transfer of the property to your SMSF, this means CGT has been quarantined at a nil rate of tax if the property assets is held until after age 55.

No stamp duty will be triggered on transfer.

So What do You Have to Do to Make All this Work?

• Setup an SMSF and trustee Company. Or, if you have an existing SMSF you need to have it’s Trust Deed and Investment Strategy reviewed to allow the fund
  to borrow. 2020 can do this for you quickly. You have the services of an SMSF Specialist Advisor and a fully qualified Solicitor.

• Find a property that meets the necessary criteria. It may be residential or commercial. Consider the ability of the fund to borrow and purchase the property and
  associated costs based on an appropriate LVR. 2020 and its affiliates can help you to find a property, or you can choose one yourself.

• Negotiate through 2020 for the right loan from the most suitable panel of IW lenders for your property and your situation. This is a complimentary free service
  provided by our in-house mortgage broking team.

• You may also choose to self fund the property’s purchase through using your own equity and lending to your SMSF or borrowing using non super assets as security and on lending to the SMSF in this way. 

• Have the Bare Trust & trustee company setup by our 2020 corporate affairs and legal team.

• Have the IW agreement between the SMSF and bare trustee drafted and put into place through our legal team.

• Have the loan documents vetted by our legal team.

• Have our conveyance team handle the conveyancing and settlement of your property.

• Have our 2020 strategic team handle your SMSF and trustee compliance needs and annual work. We take an active role with clients and maintain regular wealth creation and tax planning reviews as part of the process.

Case Study

James is 45 years old, earns $70K p/a and his industry super fund balance is currently at 50K. Jill, James' wife, is also 45 years old, earns $30K p/a and her industry super fund balance is also at approximately $50K.

They wish to purchase an investment property at $350K

James & Jill's Property Options
Option 1: Negative Gearing, or Option 2: Instalment Warrant

Scenario
Property is sold in 10 years for $700,000

The Facts
Negative Gearing Effect: Tax payable on sale: $100,000. Instalment Warrant Effect: Tax payable on sale: Nil

The Results
$100,000 better off by choosing Option 2 (Instalment Warrant) if property is sold after age 55.

Surprised by the Results? Contact 2020 to Get Started

Free Call 1800 46 2020 or info@2020.com.au