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 property for the long-term, they save 37% tax on the gain. If they held the property in their own names, they would pay as much as 47% on the gain. They are thinking about buying a $700,000 property. So if all goes well, and let's say that property doubles in value in 10 years (they do their research and buy wisely) then they have made $700,000 in capital gain. Now if that was in their own names, they would be paying tax at 47% on $350,000 because in your personal name you only pay tax on half the gain. BUT if the property was in their own superfund, they would only be paying $70,000 in tax, being 10% of $700,000. They would be saving more than double the capital gains tax! BUT wait, it gets better with Huge Tax Saving #4 below.
- IF you decide to sell the property AFTER you have retired, that is you are in what they call Pension Phase (you are drawing on your super to live off etc) then the capital gains tax in your superfund is a BIG FAT NIL! NOTHING, ZIP, ZERO. You get to walk away from the sale of the property TOTALY TAX FREE! What a great retirement that you be.
- This last point is not really a tax saving BUT it may be even better. I call it a "BONUS ADVANTAGE" It goes like this: Anything in your superfund is protected. A superfund is one of the only true remaining asset protection structures left. So if the property was bought in your own name, guess what? If you get sued or creditors jump on you or you fall victim to unscrupulous people then they can get your property, along with any other assets in your name. BUT anything in your superfund is safely locked away in its own special vault. You can tell them to "get lost!"
So as you can see there are huge tax benefits plus my Bonus Advantage of having your own superfund. If you want to discuss these tax benefits for your own circumstances then give me a call (0408 642 123) and we can sit down over a coffee, no charge, no commitment and I will step you through each of the tax benefits I have outlined here.
All this and more valuable information is in my book, The Collapse of SMSFs. ⇐Click on the link to read more.
So keep reading and keep learning. The best investment you can EVER make is in your own knowledge.