Home' API Magazine : November 2014 Contents 40 n APIMAGAZINE.COM.AU n NOVEMBER 2014
you’re likely to need about 30 per cent of the
“ The banks also require a financial planner’s
sign off to demonstrate that you have sought
financial advice and that this purchase fits
within your strategy,” he says.
“Now, some of the banks insist you go to
their own financial planner and that can cost
up to $3000.”
However, Raiss warns you should never
give a bank control.
“ There are a couple of lenders that want
to put their own corporate trustee on the
holding trust,” he says.
“It’s not as bad as it sounds but it means
you have to go back to them every time you
want to do something. Some banks are now
insisting that if you want a loan from them,
then this is how it has to be. Therefore, you
want to make sure that you choose a lender
where you can have your own trustee and
seek your own independent financial advice.”
n3. INTEREST RATES ARE
HIGHER IN A SMSF
Banks will always charge a higher interest
rate for a SMSF. Raiss says they usually have
their standard variable rate, and then other
rates with a discount of 0.5 per cent or
0.7 per cent and sometimes even one per
cent. With a SMSF, or holding trust, this will
“Banks will tell you that they have to
charge more interest because of the LRBA,”
“But nine times out of 10 they have a
personal guarantee from you, so it’s just
banks being banks.”
A SMSF loan also takes a little longer to
process, simply because there’s usually more
n4. NO RELATIVES
A property bought through a SMSF has to
meet the ‘sole purpose test’.
This means it must be purchased to help
fund your retirement income and can’t be
bought from you or a relative. You can’t live
in your new digs and you can’t rent it out to
either yourself or relatives.
It’s what property expert and author
Miriam Sandkuhler of Property Mavens
describes as ‘an arm’s length’ requirement.
“You can’t buy property and use it as a
holiday home,” she says.
“You or your family members mustn’t
get any personal benefit from the property.
You can’t do anything that puts that ‘arm’s
length’ classification at risk, or you risk
making your super fund non-compliant.
The consequences of your fund being non-
compliant are severe.”
n5. NO NEGATIVE GEARING
If you love blue-chip properties and don’t
mind negatively gearing while you wait for
capital growth, you’re probably likely to face
some shortfalls over the first few years.
However, negatively gearing is extremely
difficult and not worthwhile within a SMSF,
according to Dworcan.
“Losses are offset against other super fund
income but the maximum tax rate is only 15
per cent,” he says.
“It would make a bigger difference for
your personal income, which could be taxed
as high as 45 per cent (depending on your
“However, if you’re currently contributing
less than your allowable limits into your
SMSF, you can salary sacrifice extra to fund
the negative gearing, which is the same tax
benefit if purchased outside super.
“Secondly, with the tight rulings on
improvements, it can be difficult to increase
the income generated to transform it to
positively geared property. Lastly, with
the generous tax rate on income, negative
gearing may be a wasted opportunity, so the
incentive should be to try and make a profit
Harris adds expenses for a SMSF property
must be made within the SMSF.
“ The actual investment itself is a standalone
investment and the SMSF has to be able to
pay for the repayments, based on the income
generated through the SMSF,” Harris adds.
Dworcan says this means loan repayments
have to be made from your SMSF property.
“If you don’t have the necessary cash
reserves, you could be in trouble if your
tenant stops paying rent,” he says.
“ This becomes even more relevant once
retired, as you’re no longer earning a
But don’t forget that while you’re working,
your employer would also be putting money,
as super, into your SMSF each week, through
your normal salary. This amount should be
around 9.5 per cent of your annual wage. It
would also contribute towards holding costs.
For example, if two people have a SMSF
and earn $100,000 combined, about $9,500
would be going into the SMSF each year.
“ That amount, plus the rent from the
property, has to be enough to service
the debt or you won’t be able to borrow,”
n6. COMPLEX STRUCTURE
Most people think you buy property through
a SMSF, but you actually purchase property
in a holding trust, as part of a SMSF.
The entire fund needs to be set up by
Author of Building wealth in a self-managed
super fund and property millionaire Coral
Brian-Wheatley likes to call each of her trusts
the street name of the property.
“If we buy a property in Victoria Street,
we’ll call it the Victoria Street trust,” she says.
“Personally, I love it, because you’re in
control and it’s a tax-free environment
when you’re in pension.”
DID YOU KNOW?
There’s a loophole when it comes to
developing in an SMSF and it’s known as
the ‘non-controlled unit trust’.
You can’t renovate, subdivide or develop
using an SMSF if you have a loan against
the property. However, Raiss says it’s
possible to set up a trust and borrow and
develop with a group of people, provided
no one’s super has more than 50 per cent
share in the trust.
“You can actually use your SMSF money
to invest in the trust and go and borrow
and do a development,” he says.
“But it means the super fund or its
members can’t own more than 50 per cent.”
He adds that a non-controlled unit
trust takes you outside normal borrowing
“Someone might say ‘I would love to
buy that block of land and then go and
build there. I can’t do it with super but I
have a friend...’ or ‘I want to go and buy a
Interested? It’s very much a case of
‘don’t try this at home’. Definitely see your
COVER STORY n Super Wealth
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