If you are an SMSF client, you’re allowed to invest in residential and commercial property, but before you do, there are particular rules and regulations that you must adhere to, so familiarize yourself with them to avoid any consequences.
The sole purpose of SMSFs is to provide benefits to its members upon retirement, to their dependents if they die, cessation of work due to health issues. This article will give you insights into how you can benefit from buying a property using a self-managed super fund. Keep reading to learn more.
Low Capital Gains Tax (CGT)
SMSF property gets tax benefits related to capital gain tax. For example, for any property held for more than 12 months, the fund will receive a 1/3 discount on any capital gain it makes upon sale. This lowers the capital gains tax liability to a maximum of 10%. If held for less than 12 months, a 15% tax rate applies to the capital gain. Waiting until you retire to begin a pension in your SMSF before selling the property warrants you a tax rate of as low as 0%.
An SMSF allows you to purchase a commercial property, and rent it back to your business at the current market rental prices for the lease. The super fund then imposes a 15% tax rate on the rental income, after which you can claim a tax deduction for the rent at your regular tax rate. The revenue gained goes back to your SMSF instead of benefiting somebody else.
Great tax flexibility
Complying with the super fund’s legislation entitles members’ contributions and earnings to a superannuation rate of 15%. If you receive your benefits after the age of 60, they aren’t taxed.
Control over investment
As an SMSF trustee, you directly control your investments, strategies, and portfolio diversification. You can invest in products available to public funds and others that aren’t.
Compared to public funds, SMSF fund provides excellent flexibility with member death benefits where the member; when still alive, can organize for:
- Death benefits to be given to his dependent in pension form and not as a lump sum, enabling SMSF to continue operating
- Future generations to receive the funds tax-effectively
- Any non-cash assets to be directly moved to the beneficiary
The sole purpose of an SMSF is to benefit members after retirement or his dependents once they die. All the income and benefits accumulated over time are meant to care for the members during their old age.
Low fee on high member balances
Unlike public super funds who charge their members a percentage fee on their invested amounts, SMSF doesn’t charge anything on their members’ investments. Instead, they charge a flat rate fee for services and advice.
High purchasing power
Currently, an SMSF can have up to four members, with pending legislation suggesting six. If all the members combine their capital, they can get a high purchasing power that they can use to invest.
Contrary to public super funds, SMSF allows you to monitor every transaction that happens against your account. You track your contributions, income earned and also look at the expenses. You have complete visibility of how your funds are performing.
SMSFs are a great way to save for your retirement. Buying a property using a self-managed super fund will benefit you and your dependents in the long run.