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“If you’re in your 30s or early 40s, there
mightn’t be as great a need to lower your
debt liability,” he says.
“Again, on the issue of maintenance, if
you’re buying a property in super in your
late 30s, that’s potentially 20 years you’ll
“Imagine when you go to sell it after all
that time – it’ll almost certainly need to
be updated. How will you fund that? Will
you have the time or desire to take on a
project of that scale?”
Risk is another consideration and your
age will guide the sort of investment
strategy you devise to buy property
¿ ARE UNITS WORTH CONSIDERING?
Freudigmann says he wouldn’t
necessarily distinguish between houses
and units, although an asset with land
attached could appreciate at a faster rate.
“From a cash flow perspective, units
might be more expensive to maintain
given strata fees. Depending on the
complex and its age, strata levies can
tend to be quite high.”
The size of the unit complex could also
impact price growth. If it’s especially large,
you’ll likely wind up with an asset that has
no unique quality – it looks just like the
other couple of hundred in the building.
Slack-Smith says it’s not so much
the type of dwelling you buy but its
investment fundamentals. A SMSF should
be seen as a vehicle through which to buy
property, not as a strategy in itself.
“The fundamentals are just so important.
It should be a property that fits into a
buy and hold strategy, given that’s what
you’re almost curtailed to with the longer
hold time that comes with a SMSF.
“You should be absolutely sure you’re
buying the right property in the right
location for the best price. That could be
a house or a unit, the suburbs or the city.
Just be very strategic.”
The property held in super will produce
rental income, on which tax is payable.
However the same negative gearing
benefits that apply to investments held
in your own name also apply in a SMSF,
“The income for your fund would be
contributions made direct to the fund
as well as the rent from the property,”
“The expenses would be those
associated with a rental property and
maybe another couple of thousand dollars
worth of ongoing costs to run the fund. So,
Property investor Richard (not his real
name) has established a self-managed
superannuation fund and is now ready
to use it to buy a property. The trouble is,
he’s confused about which approach
API put some of his questions to
taxation expert Pat Mannix, principal of
Gatherum-Goss and Associates.
Q Should we look to maximise
yield over capital growth when
A If you’re younger than 40, capital
growth should certainly be your
main focus. The taxation benefits are just
too good. When you sell a property asset
that’s held in super, the capital gains tax
rate is 10 per cent. If you sell it when you
retire later in life, there’s no tax on the
sale. If, however, you’re older than 40,
consider prioritising yield but maintain
some focus on growth.
Q What should we look at over the
course of our working life?
A You should be looking to buy a
second property in super a lot later
than you would outside of super. Super
shouldn’t be put at risk. It’s impossible to
get a bank to look at the higher value on
your first asset to leverage to buy another.
It’s now allowed. It could take five to 10
years to build enough income from your
contributions/rent to establish enough of
a deposit for a second investment.
Q Should we focus on rapid debt
reduction of the loan for the
property in super?
A You might be better off keeping
repayments at their normal level
and putting your extra money towards a
deposit for your next investment property.
Q Is it really all about
A In my view, you should really
focus on capital gain for super
investments. It’s all about building your
retirement savings, after all.
Q When we retire, is it better to sell
privately owned property to pay
down the debt within super?
A No, it’s really the other way around.
It’s better to sell property in super
and not pay capital gains tax and then use
the proceeds to pay down personal debt
outside of super.
Tackling some big questions
say the super contributions are $20,000
per year and the rent is another $20,000,
and you’ve got $30,000 in expenses, the
taxable income is $10,000.”
The tax payable on that amount would
be 15 per cent, which is much lower than
the marginal tax rate applied to income
outside of super.
When you’re in pension phase, if you still
own an income-producing asset inside
super, there won’t be any tax on the
income, provided the fund’s net annual
income is under $100,000, she says.
¿ CAN I CLAIM THE SAME DEDUCTIONS?
Generally speaking, you can claim
deductions for the same expenses
associated with producing income from
a rental property inside super as you
can outside. Property management fees,
insurance, maintenance and repairs and
depreciation are just a few.
As with anything, ask your accountant
if you’re in doubt about what’s an
¿ CAN I RENOVATE OR DEVELOP?
There are strict rules imposed on
changing the nature of a property that’s
held as security for the borrowing,
Hartman says. Essentially you’re not
allowed to substantially change the asset.
You certainly can’t borrow to undertake a
development of any kind either.
“You can’t borrow to buy a block of
vacant land in your SMSF and build units
or even a house on it. You can’t borrow
to buy a single dwelling and bulldoze it
to build a duplex. The ATO is very strict
“Funnily enough, you can buy a single
dwelling and put a granny flat in the
backyard – go figure.”
¿ WHAT IF I WANT TO SELL?
If you decide to offload the property you
own through your SMSF, how much tax
you’ll pay depends on whether you’ve
retired or not. If you’re not yet in pension
phase, Hartman says you’ll pay capital
gains tax (CGT) of 10 per cent on the profit.
But if you’ve retired and you sell it,
you won’t pay any CGT at all. This can
be quite the boon, she says, especially
if you’ve held it long-term and made a
All of that time you’ve effectively
negatively geared the property at your
own tax rate by making deductible
superannuation contributions to cover the
shortfall, yet when you realise the capital
gain you’re taxed at the SMSF’s tax rate,
not yours. API
BEGINNERS’ GUIDE TO SMSFs \\ FEATURE
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