5 HUGE TAX SAVINGS FROM HAVING YOUR OWN SELF-MANAGED SUPER FUND
I was speaking to a client last week who was telling me that their superannuation was going no where and they wanted to buy an investment property as part of their retirement savings plan. They didn't want to negatively gear the property and wanted it to be cash-flow positive from the start. They also said it was a long-term plan of theirs to have maybe 2 or 3 properties in the next 10-15 years in a property portfolio. BUT here's the problem. They don't want to pay any tax on their rental income or capital gain on the property or risk the property if something happens to the business or they get personally sued etc.
"Perfect!" I said. They looked at me blankly. "We can do all that if you buy the property in your own superfund."
"What do you mean Matthew? Are you kidding me? The government taxes us so much now. If we buy a property it's just going to add to our tax woes."
"Let me show you the 5 huge tax savings from having your own Self-Managed Superannuation Fund," I said to them.
It goes like this:
- Super Fund net earnings are taxed at only 15% compared to as much as 47% on your personal earnings. So if you have the property in your name, rather than in an SMSF, you could be paying as much as triple the tax on the net rental income from that property. No brainer.
- You get a tax deduction for paying down the property loan. When you make a contribution into your super fund, you get a tax deduction. Now superfunds pay tax at 15% on contributions. But if you are say in the 30% plus tax bracket, you are still saving a net of 15% in overall tax. So the funds that go into your superfund you get a tax deduction for AND can be used to pay down the property loan. How good is that?
- When you go to sell the property and you haven't yet retired (still in accumulation phase they call it), the capital gain is reduced to just 10%. That's right. A superfund only pays 10% capital gains tax if you hold the asset for more than 12 months. Now since the client said they wanted to hold the