Home' API Magazine : November 2014 Contents 42 n APIMAGAZINE.COM.AU n NOVEMBER 2014
Sarah* works as an accountant but describes
the process of purchasing property through a
SMSF as “horrible, the whole thing”.
“Just the paperwork, right from the
beginning, and making sure you have the
correct structures in place,” she laments.
Sarah and her husband are already
successful investors. They own a house
in Holland Park, Brisbane, along with two
investment properties in Deception Bay
and Nundah, also in Brisbane. Their latest
acquisition will be property number four.
It’s a one-bedroom off-the-plan apartment
in South Brisbane.
Sarah and her husband had purchased
shares before but they never seemed
to do well and their super also hadn’t
So they decided to use their property
skills and knowledge and purchase another
property through a SMSF. With a price tag of
$425,000 the numbers for an investment
property with river views seemed to stack up.
“We thought, instead of leaving our money
in an industry super fund, we’d bring it over
to a SMSF,” Sarah explains.
“We like to invest in property. Bricks and
mortar is one of our favourite investments.
We’re not really good at choosing shares.”
The trouble is, the way you set up a SMSF
at the start determines what you can do
with the property and how you can utilise it.
Make one mistake and there’s no going back.
Sarah and her husband have unfortunately
learned this the hard way.
They established their SMSF first and
thought they had plenty of money in it.
They then approached one of the big four
banks, who told Sarah that they should
easily be able to obtain a loan, provided they
continued receiving super contributions
from their employers and also put extra
money into their super accounts through
Sarah and her husband then went and
bought the off-the-plan apartment through
their super fund, assuming the loan would
go through. The big error was that they never
“As we bought off the plan 18 months
before we wanted the loan and it’s a little
bit risky this way (to purchase the property
first),” she laughs.
“It’s not something I’d recommend. When
we went back to them and said ‘can we get
the ball rolling’ the guy turned around and
said ‘no, we can’t do the loan until we see
Obviously being off-the-plan, there was no
building to see.
Sarah and her husband had already put
a deposit down and signed the contract to
purchase the property,
so they faced either
losing the deposit, or
having to on-sell the
property off the plan
and try to at least
They went to
another smaller bank
in search of a loan, but
were told they wouldn’t be able to obtain it
because they didn’t have enough liquidity in
Sarah and her husband have $130,000
in their SMSF. The smaller bank told them
they needed about $60,000 in their
account, after the deposit and stamp duty
were paid. In other words, they needed at
“There would only be about $20,000 left,”
“So it’s still not across the line.”
They’re now in the process of going
back to the bigger bank and trying to work
out some sort of an arrangement, with
settlement supposed to be just weeks away.
The likely option is to put an after-tax
contribution into their SMSF, probably by
using equity in their own home
Otherwise, they could try and sell the
off-the-plan property back to themselves, in
their own name. However, this would mean
paying stamp duty, legal fees and all the
other entry-level costs twice. They’re still
trying to figure out exactly what to do.
If they don’t go ahead with the purchase,
they’ll likely lose their deposit, and so the
most likely option at this stage is probably to
refinance their own home.
Having experienced this nightmare, Sarah
advises those keen to purchase property
through a SMSF to avoid off the plan. She
now believes they would have been better
off simply purchasing the property in their
“It’s quite stressful but it’s our own fault,”
“We could have bought something older
but we wanted to buy a (new) unit because
it’s such a good building.”
She also believes anyone using super to
buy property needs at least $200,000 in
their SMSF and that it’s best to get
pre-approval from a bank.
“I did the figures, but I didn’t know the
banks had liquidity rates,” she says.
“We did it the wrong way and it’s now a
nightmare trying to sort it out.”
Sarah’s real name has been withheld for
privacy reasons by request.
Park, Brisbane, Qld
n1. TAX BENEFITS
The biggest advantage when it comes to
buying property through a SMSF is the
beautiful tax concessions.
SMSFs are subjected to income tax but it’s
at a much lower rate of just 15 per cent.
“If you individually earn more than
$80,000, you’ll be taxed 38.5 cents in the
dollar, but with a super fund it’s taxed at just
15 cents (in the dollar),” Harris says.
Dworcan says the capital gains tax rate is
reduced to just 10 per cent for assets held for
12 months and it’s eliminated once you’re in
the ‘pension phase’.
“It can save you tens of thousands,
even hundreds of thousands, in tax,”
“It’s a similar story for rental income, with
15 per cent tax being the maximum and none
at all during pension phase.”
Beeton says you can essentially purchase a
property in a SMSF when you’re 50, then sell
it tax-free when you’re in ‘pension phase’ at
60 (provided you have actually retired).
“A SMSF can sell at anytime, however,
profits go back into the SMSF, which can only
be drawn once members reach preservation/
retirement age. If you were born before July
1, 1960, that age is 55 and anyone born after
July 1, 1964, has a preservation age of 60,
with the ages progressively increasing by a
year for the period in between.”
Brian-Wheatley says it’s also possible to
use an existing portfolio outside a SMSF to
“When we sell properties outside a fund we
have a capital gain, but to reduce capital gains
tax, we could contribute more to our SMSF,”
“If you retire and you’re in pension phase
you pay nothing (in tax when you sell
through a SMSF). If you aren’t yet in pension
phase, you only pay 10 per cent.”
However, the rules can vary and depend on
each individual’s circumstances, so always see
an accountant or qualified adviser first.
Raiss adds buying property in a SMSF has
enormous tax benefits for those who are
getting closer to retirement and don’t yet
have a property portfolio.
“Some people can’t buy outside super
(because they don’t have enough cash for a
deposit) but they might have a lot of super.
The bank also takes into account the 9.5 per
cent super guarantee (from an employer). In
this case, buying in super means you have a
long-term asset that will grow and be tax free
in the pension stage,” he explains, adding that
you can then sell it tax free and pay down
A not-so-easy investment
COVER STORY n Super Wealth
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