Investments in Self-Managed Super Funds (SMSF’s) have significant tax advantages over investments outside of superannuation and provide a great wealth-building opportunity.
Some of the key tax advantages are –
Tax on income of your SMSF investment is set at 15%, compared with up to 45% (base rate over $180,000) outside of superannuation.
Tax on income of your SMSF investment once you reach your “Retirement Phase” is set at 0% compared with up to 45% outside of superannuation.
Capital Gains Tax on property sold within 12 months of purchase within the “Accumulation Phase” is 15%, instead of up to 45% outside of SMSF.
Capital Gain Tax on property sold within 12 months of purchase, once you reach your “Retirement Phase”, is set at 0%. Capital Gain is tax-free!
Capital Gain Tax on property sold after 12 months of purchase within the “Accumulation Phase” is 10%.
Capital Gain Tax on property sold after 12 months of purchase, once you reach your “Retirement Phase”, is set at 0%.
Another advantage is that bank loans for an SMSF investment property are non-recourse loans. This means the lender’s rights are limited to the asset held in the separate trust i.e. there is no recourse for the lender to pursue other assets in the SMSF.
Generally, non-recourse loan interest rates are higher than regular investment loans to reflect the risk of the non-recourse arrangement (arguably more than offset by the very low taxation on income).
Prior to the retirement phase, the mortgage has a strong payment strategy coming from extra strong rental income due to the low taxation rate (15%), from your superannuation guarantee payment, and possibly from other contributions.
Investment Property within SMSF’s have significant tax advantages over property outside of SMSF’s and provide a great opportunity to build wealth through both the Accumulation and Retirement Phases.
Our Financial Planner referral partners advise that to make your SMSF property investment cost-effective and to have sufficient diversification, a minimum amount of $250,000 or more in superannuation (or combined superannuation) is needed to allow a situation where you can purchase a worthwhile property while still having some diversity in other investments.