OFF-THE-PLAN PROPERTY INVESTMENT THROUGH YOUR SELF-MANAGED SUPER FUND

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1 OFF-THE-PLAN PROPERTY INVESTMENT THROUGH YOUR SELF-MANAGED SUPER FUND EVERYONE WANTS TO KNOW ABOUT IT There s no denying it, people are starting to clue onto the concept of Self-Managed Super Funds (SMSF), and how they can best use them to their advantage in property investment. Currently there are about 74,000* SMSF Google searches conducted annually. Of those, about 10% of them are related to investing in property via a SMSF. We see this number growing year on year and it definitely looks to be hot topic right now. So, we ve established there s a growing interest in property investment via a SMSF, but what about the selection of investment properties available in Perth and finding one that is SMSF ready? This is where Investor Assist can help, in partnership with Alcock Brown-Neaves (ABN) Group and it s sister companies. PLANNING YOUR FINANCIAL FUTURE THROUGH PROPERTY INVESTMENT Building over 3,500 homes a year in Western Australia and Victoria, the ABN Group has constructed more than 52,000 homes in total since Ranked 2nd in the Housing Industry Association s 2011/12 Housing Top 100 list, the ABN Group has established itself as an industry heavyweight. It has been a powerful success story for directors Dale Alcock and Garry Brown-Neaves, who both started their careers in the building industry as apprentice bricklayers. Committed to excellence, the privately owned ABN Group has cemented itself as Australia s leading construction, property and finance company. This wealth of knowledge is shared with you to ensure you, our valued client make the right decisions in long-term property investment. Financial Security Through Property

2 FINDING AN INVESTMENT PROPERTY The ABN Group has built on its passion for property and commitment to quality by introducing Investor Assist to the Western Australian marketplace. We provide an end to end, no fee service designed to assist clients and individuals achieve financial security through property investment. At Investor Assist, we aim to ensure our clients make smart property investment decisions and we re here to help our clients develop a strategic investment portfolio, assisting in achieving long-term objectives, even after retirement. We use strict criteria to identify investment properties in and around Perth that represent sound value for money. Among these investments are off-the-plan homes that are SMSF ready, house and land packages, inner city apartments and offerings in the Pilbara region with many at better than new building prices. CHOOSING AN INVESTMENT SOLUTION THAT SUITS YOUR PERSONAL CIRCUMSTANCES From the interest received in property investment via a Self- Managed Super Fund, Superbuild is an initiative that makes developing your property investment portfolio with off-the-plan homes, via your SMSF easy and cost effective. When you invest in a SMSF ready investment through Superbuild, you invest in an off-the-plan home that s designed for investors and the tenant alike. Compared to a finished, established home purchase you could also benefit from the cost savings of developing your investment. It s brought to you by a collaboration of suppliers within the ABN Group and driven by Investor Assist, and because you are dealing with a building group direct, there are no referral fees to pay. We re currently offering off-the-plan homes on individual lots in and around Perth; namely Hammond Park, Baldivis and Landsdale and coming soon is a whole host of city infill locations, ideal for SMSF.

3 Provided by RSM Bird Cameron Chartered Accountants THE BASICS ON OWNING AN INVESTMENT PROPERTY IN A SMSF If you have a SMSF with a minimum of $100,000 earmarked for property investment, you could be ready for Investor Assist to take you through the next steps of your SMSF property investment journey. Firstly though, accounting firm RSM Bird Cameron will provide you with the basics towards owning an investment property through a SMSF. The benefits of owning an investment property in a SMSF: The tax rate for SMSF s is 15% and only 10% on capital gains for assets held longer than 12 months; A SMSF is a safe form of asset protection; Once you have reached preservation age, (between 55 and 60 depending on when you were born) you can convert your superannuation to pension phase so that the fund pays no tax on its income or capital gains; Once you reach 60 (and have retired) you re entitled to receive your superannuation tax free; Holding negatively geared property in a SMSF can put you in exactly the same tax as holding it in your own name but with the benefit of a lower tax rate on principal repayments or when it becomes profitable. It s important to note here that you can only borrow against the property once, so you can t access any equity you may build up in the property to borrow for another property. What about if you are a wage earner? Ask your employer as to whether they will contribute your salary sacrificed contributions into your SMSF. WHAT S INVOLVED IN SETTING UP A SMSF If after all these considerations SMSF ownership still seems plausible then ascertain how much cash will be required to prop up the investment. Put simply, this is the annual rent less interest and expenses. Ignore depreciation, as this isn t a cash flow item and make sure you allow plenty of room for factors such as vacancies. Once you establish the amount you will need to contribute to SMSF in order to support the property you will need to make an arrangement tax effective. This means making it as deductible (concessional contributions) or in other words before tax dollars, that either you (if you are self-employed) or your employer (because you salary sacrifice it) have claimed a tax deduction for all of the contribution. Although age dependent, generally you re allowed $25,000 per year as a deductible superannuation contribution, this includes the amount your employer will make under the 9% guarantee. So it is important to ensure your employer is happy to make this contribution into your SMSF. Even though your superannuation fund has to be declared as income any contributions it receives for which you or your employer will claim a tax deduction the 15% tax rate only applies to the SMSF profit. Therefore if your contributions are offset by a negatively geared rental property within the fund, then the SMSF doesn t have to pay tax on your contribution.

4 Owning an asset in your own name If your taxable income is $80,000 and you own this property in your own name, then your taxable income would be reduced by the rental property loss to $70,000. If instead you salary sacrifice $10,000 into your SMSF which owned the property, your taxable income would still be $70,000. Owning an asset in your SMSF As the SMSF taxable income is $0, there is no contributions tax payable on the $10,000. Due to deprecation only being a book entry dollar amount, the above property will provide your SMSF with a spare $5,000 in cash flow. This can be paid off the principal of the loan with no tax consequences. Further, if you still have space under your cap, you could contribute more deductible contributions to your SMSF to pay down the principal which would only be taxed at 15% rather than your marginal rate if the property was held outside of the SMSF. Now that you understand the mechanics of the tax effectiveness of owning the investment property in your SMSF, the next thing to understand is how the borrowings are set up before you start to apply to finance. When borrowing to invest in a SMSF consider: The loan must have limited recourse (i.e. the lender can t recover money from the SMSF in the event of default) and the assets of the super fund can t be used as security; The lenders only security is the new property. The new property is held in a bare trust for the benefit of the SMSF; Once the last installment on the loan has been made the asset is transferred into the SMSF. Furthermore owning your Investment Property in a SMSF rather than your own name has some other advantages: 1. Salary sacrificing the gap between rent and loan is all tax deductible. Under negative gearing it is only the loss portion, not the principal loan repayments portion. 2. If the property is sold once retired then the capital gains tax for SMSF will be zero, or at worst 10% if sold preretirement. Looking at the comparison in figures of owning the asset in your SMSF versus in your own name OWNING AN ASSET IN YOUR OWN NAME INCOME OWNING AN ASSET IN YOUR SMSF INCOME Rental Income $30, Rental Income $30, Superannuation Contributions $10, $40, LESS EXPENSES LESS EXPENSES Interest $30, Interest $30, Rates etc $5, Rates etc $5, Depreciation $5, Depreciation $5, Rental Property Loss $40, $40, $10, income less expense

5 The following is a graphical representation of the SMSF process SMSF Loan Loan repayments BANK Rent Expenses Super contributions Investment property Provides house property Title You or your employer on your behalf Bare or security trust Holds title until repayments are completed and transferred to SMSF START BUILDING TOWARDS YOUR RETIREMENT TODAY Take the next steps in planning your financial future today and get in contact with an Investor Assist Property Investment Specialist. Find out what investment properties are on offer that are SMSF ready and suited to your needs. Call , info@investorassist.com.au or visit smsfsuperbuild.com.au DISCLAIMER: This information is of a general nature only and should not be ready as investment or risk advice. No warranty is given in relation to the information provided. We strongly recommend that you seek your own advice from your accountant and/or financial advisor regarding what is appropriate to your own objectives and for your own financial situation before acting on any of the information contained in this material. For further information on Self-Managed Super Funds visit RSM Bird Cameron at *Source: Google