webinar: discover how to use your super to invest in property
TRANSCRIPT
Master Class:Discover How To Use Your Super To Invest In Property
With Dean Rosario from Anne Street Partners
Master class webinars• Designed to share knowledge.
• Desire to provide extra value to our clients.
• Great for both new and experienced investors.
• Plenty of opportunity for Q&A.
• We will run these regularly throughout the year, and sometimes involve our partners to provide additional insight.
Todays 9 topics
1. Demonstrating the enhanced investment flexibility SMSF can provide.
2. Explanation of the many advantages of SMSF property investing.
3. How to take control of your investment mix inside of SMSF.
4. How SMSF gives you increased estate planning benefits.
Todays 9 topics
5. Explanation of the many tax advantages that can be gained with a SMSF, both before and after retirement.
6. Why pooling your resources with family members can help you reduce SMSF costs.
7. Limited recourse borrowing arrangements (LRBA).
8. A realistic case study
9. Why investing in property can be a great strategy for your SMSF and retirement planning.
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Anne Street Partners Pty Ltd. ABN 25 107 671 56310
Material contained in this presentation is an overview only and it should not be considered as a comprehensive statement on any matter nor relied upon as such.
This presentation contains general information only and does not take into account your personal objectives, financial situation or needs and you should consider whether the information is appropriate to you before acting on it. Both superannuation and tax laws are complex and subject to change. Before acting on any information you should consider seeking advice from a financial adviser and your accountant before making any financial decision in relation to any matters discussed in this presentation.
Anne Street Partners Pty Ltd. ABN 25 107 671 56311
Introducing Dean Rosario
Meet your presenter
• Dean has over seven years of hands-on experience in the SMSF sector, particularly within the area of limited recourse borrowing arrangements.
• Dean is a Justice of the Peace, holds a Bachelor of Banking & Finance Degree and a Diploma of Financial Services.
• He is also a member of the SMSF Association of Australia.
• A SMSF Trustee himself, Dean enjoys providing assistance and direction to other SMSF trustees.
Anne Street Partners Pty Ltd. ABN 25 107 671 56312
Anne Street Partners
• Established 1997
• Privately owned – non bank aligned
• Broad range of financial solutions
• Nationwide footprint
• Experienced SMSF administrators since 2008 – 700 funds under administration
One of Australia’s leading wealth management organisations
Anne Street Partners Pty Ltd. ABN 25 107 671 56313
What is a Self-Managed Super Fund?
• Self-Managed Superannuation Funds (SMSFs) are financial vehicles for retirement savings.
• The difference between a SMSF and other types of funds is that the members of a SMSF are usually also the trustees.
This means the members of the SMSF run it for their own benefit and are responsible for complying with super and tax legislation.
Anne Street Partners Pty Ltd. ABN 25 107 671 56314
What is a Self-Managed Super Fund?
• A super fund with up to 4 members
• All members are trustees or directors of corporate trustee
• All trustees are members
• Regulated by the ATO
• No member of the fund is an employee of another member (unless related)
• Trustee are not able to be remunerated for their duties as trustees
Anne Street Partners Pty Ltd. ABN 25 107 671 56315
Did you know?
• There are over 525,000 SMSFs in Australia containing approximately 30% of the $2.05 trillion held within superannuation.
• Over 1 million Australians have a SMSF and embraced the vehicle as a useful tool to save for their retirement
• In 1998 only 12% of Australia’s superannuation wealth was contained within SMSFs compared to more than 30% today.
Anne Street Partners Pty Ltd. ABN 25 107 671 56317
Why choose Self – Managed Super?
• Asset types
• Personal investment strategy
• Pooling of super funds – family/friends
• Limited recourse borrowing arrangements (LRBA)
• Tax planning
• Estate planning
• Acquisition of business premises
• Running cost / economy of scale
In a word - CONTROL
Anne Street Partners Pty Ltd. ABN 25 107 671 56318
Important considerations
• Roles & responsibilities of trustee
• Existing insurance cover
• Allocation of time
• Outsourcing of services
• Minimum superannuation balance
• No access to Superannuation Complaints Tribunal
• Living permanently overseas
Anne Street Partners Pty Ltd. ABN 25 107 671 56319
Trustee responsibilities
• SMSF trustees have ultimate responsibility for the operation, management and compliance of the fund.
• The primary obligation is to ensure the fund is maintained only for the purposes of providing retirement benefits to its members.
• This is the Sole Purpose test.
Anne Street Partners Pty Ltd. ABN 25 107 671 56320
Role of a trustee
• Act honestly in all matters concerning the fund
• Exercise skill, care and diligence in managing the fund
• Act in the best interest of the members
• Ensure members only access benefits once condition of release is met
Trustees are required by law to:
Anne Street Partners Pty Ltd. ABN 25 107 671 56321
Role of a trustee
• Ensure members’ personal monies are kept separate from the fund’s
• Take appropriate action to protect the fund’s assets
• Comply with all regulations under the Superannuation Industry Supervision (SIS) Act
• Prepare, implement and regularly review a fund investment strategy
Trustees are required by law to:
Anne Street Partners Pty Ltd. ABN 25 107 671 56322
Role of an Administrator
• Acts as the tax agent for the fund and assists with the annual compliance requirements.
• Prepares annual tax return and financial statements
• Lodges annual tax return with ATO
• Different levels of service offerings available
• Works with the Auditor to arrange the completion of the annual audit
Anne Street Partners Pty Ltd. ABN 25 107 671 56323
Role of an Auditor
• It is a formal requirement that each SMSF is audited by an approved auditor, registered with ASIC, on an annual basis.
• Provide an independent audit of the fund’s accounts along with a SIS compliance audit.
• The auditor will notify the trustees of any concerns raised during the audit. Depending on the severity the auditor may be required to raise an audit contravention report with the regulator, the ATO, for further action.
Anne Street Partners Pty Ltd. ABN 25 107 671 56324
Role of an Adviser
• As a SMSF is a complex structure it is imperative that the trustees form a close relationship with a Financial Adviser for ongoing education, guidance and advice.
• For funds entering LRBAs many lenders require the fund to obtain independent financial advice.
Anne Street Partners Pty Ltd. ABN 25 107 671 56325
Tax considerations
• Generally, the superannuation environment is subject to a concessional tax rate of 15%
– Negatively geared investments– Fully franked dividends – Discounted capital gains tax– TTR strategies
• An SMSF trustee has control over the timing of asset disposals and acquisitions which allows the trustee to maximise the tax position of the fund.
Anne Street Partners Pty Ltd. ABN 25 107 671 56326
Estate planning
• Ordinarily a super death benefit does not form part of your estate
• Legislation only permits Super death benefits to be paid to:
– Estate– Spouse– Child – Any other person in interdependency
relationship
Anne Street Partners Pty Ltd. ABN 25 107 671 56327
Estate planning
• Super dependent vs Tax dependent
• Check the trust deed
• Review estate plan regularly
• Inter-generational wealth transfer strategies can be adopted using a SMSF
Anne Street Partners Pty Ltd. ABN 25 107 671 56330
Audience poll
•What are the total fees you are paying your super funds each year?
Anne Street Partners Pty Ltd. ABN 25 107 671 56331
What are the costs?
• Fund establishment with corporate trustee
• Security / borrowing trust with corporate trustee
• Annual administration (depending on complexity)
• Annual audit
• Annual ASIC fees (from 1st July 2015)
• Annual ATO Supervisory levy (existing fund)
$1,000 – 2,000
$1,000 – 5,000
$500
$46 - 246
$259
$2,000 – 4,000
Fee $
Anne Street Partners Pty Ltd. ABN 25 107 671 56332
Winding up a SMSF
• Non compliance
• Separation of trustees
• Death of member(s)
• Insufficient balance
• Overseas retirement
Anne Street Partners Pty Ltd. ABN 25 107 671 56334
Is a SMSF for everyone?
• Competence
• Commitment
• Compliance
Anne Street Partners Pty Ltd. ABN 25 107 671 56335
Tips and traps
• Get advice
• Most common mistakes relate to separation of personal assets
• Working overseas (SMSF residency)
• Keeping records
• Pensions
• Death benefit nominations
• Beware of scams!
Anne Street Partners Pty Ltd. ABN 25 107 671 56337
Amendment to SIS Act
• Superannuation Industry Supervision (SIS) Act amended in September 2007 (section 67A)
• Section 67A contains an exception for certain limited recourse borrowing arrangements (LRBAs):
– Borrowing is for acquisition of single acquirable asset
– Acquirable asset is held on trust with trustee acquiring beneficial interest
– Trustee has a right to acquire legal ownership after one or more payments
– Upon default, lender’s rights are limited to rights relating to the acquirable asset (personal guarantees)
Anne Street Partners Pty Ltd. ABN 25 107 671 56338
Audience poll
•How much super do you need for a comfortable retirement?
Anne Street Partners Pty Ltd. ABN 25 107 671 56340
Meet Tony & Karen
– Tony is 44, works full time on $155,000 p.a.
– Karen is 42, works part time on $45,000 p.a.
– They have two dependent children aged 16 and 13.
– They have a combined Super balance of $205,000 across 5 Super funds.
They wish to invest in property however due to both children being dependent they spend all of their income on lifestyle commitments.
They are looking for an alternative way to invest in property which does not impact their current lifestyle.
Anne Street Partners Pty Ltd. ABN 25 107 671 56341
Tony & Karen’s strategy
– Establish a SMSF
– Combine their existing super balances in the SMSF
– Purchase a $460,000 apartment in Chermside, Brisbane
– Obtain lending via a LRBA to complete the purchase
Anne Street Partners Pty Ltd. ABN 25 107 671 56343
The numbers
Tony & Karen’s SMSF property purchase
Purchase price $460,000
Stamp duty $14,525
Other purchase costs $5,000
Total Investment $479,525
Loan details
Principal & interest
Term 30 years
LVR 70%
Rental income (4.7% yield) $21,620
Interest rate 5% p.a
Monthly repayments $1,703
$322,000 from lender and $157,525 from SMSF
Anne Street Partners Pty Ltd. ABN 25 107 671 56344
Property cash flow (simple)
Income
Gross rental income $21,620
Expenses
P&I Loan repayments $20,440
(Interest only portion $15,552)
Agent fees (8%) $1,730
Rates & Water $1,200
Body Corporate $3,000
Insurance/Other $1,000
Net property cash flow -$5,750
(Net property cash flow -$862 if interest only loan)
Anne Street Partners Pty Ltd. ABN 25 107 671 56345
Tax Position of Fund
Income
Personal concessional contributions $19,000
Interest $997
Gross Rental Income $21,620
Gross Income $41,617
Less Expenses
Interest $15,552
Agents Fees $1,730
Rates / Water / Body Corporate $4,200
Administration / Audit / ATO / ASIC $3,051
Insurance (Personal & Property) $3,000
Borrowing Costs (Amortisation) $440
Depreciation - chattels $1,997
Depreciation - building Write Off $6,416
Total Expenses $36,386
Net Income $5,231
Tax Payable at 15% $785
Anne Street Partners Pty Ltd. ABN 25 107 671 56346
SMSF cash flow (simple)
Income
Contributions $19,000
Interest income $997
Expenses
Net property cash flow ($5,750)
Personal Insurance ($2,000)
Administration & Audit ($2,500)
ASIC & ATO ($551)
Income Tax ($785)
Net SMSF cash flow $8,411*
(Net SMSF cash flow $13,299* if interest only loan)
*before depreciation
Anne Street Partners Pty Ltd. ABN 25 107 671 56347
Surplus cash applied to loan(Single property) – Freehold by year 17
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Loan Balance
Years
$267.8k
$45.5k
$178.3k
Anne Street Partners Pty Ltd. ABN 25 107 671 56348
Projected property value(Single property)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 200
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Years
Assumes 5.5% growth
$601k
$1.34m
$1.02m
$787k
Anne Street Partners Pty Ltd. ABN 25 107 671 56349
Projected SMSF value(Single property + cash)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 200
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
YearsAssumes surplus cash applied to loan
$380.8k
$1.58m
$1.03m
$654.9k
Anne Street Partners Pty Ltd. ABN 25 107 671 56350
Go further – buy 3 properties
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$2,329,980Property 2 $750,000
Property 3$1,000,000
$3,862,101
$1,579,596
Net SMSF Value Property Value Loan Value
20 year result
Property 1 $460,000
Anne Street Partners Pty Ltd. ABN 25 107 671 56351
Go further – buy 3 properties
• Value of 3 properties at year 20 $3.86m
• Loan balance on properties $1.58m
• Property equity $2.21m
• Less
– equity in SMSF at start $205k
– 20 year contributions (with 3% CPI) $510k
• Equity growth through property (net of purchase costs) $1.49m
• Average annual capital growth over 20 years $74.7k
• Annual fund surplus cashflow by year 20 (excluding personal contributions) $50k p.a.
Anne Street Partners Pty Ltd. ABN 25 107 671 56352
Audience poll
•What is your current combined super balance?
Anne Street Partners Pty Ltd. ABN 25 107 671 56353
Benefits of strategy
• Ability to invest in direct property
• No financial impact on lifestyle
• Increase exposure to growth assets
• Control over investment choice
• Tax benefits to fund
Anne Street Partners Pty Ltd. ABN 25 107 671 56355
The Anne Street Partners Super Team
• Brisbane based team with over 40 years collective SMSF experience
• Established 1st SMSF in 2008
• Developed SMSF trust deed suite in 2013
• Provides setup & administration services to 700+ funds
• Able to respond to ATO audits
Anne Street Partners Pty Ltd. ABN 25 107 671 56356
Get your 45 min complimentary SMSF phone consultation today
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Anne Street Partners Pty Ltd. ABN 25 107 671 56357
SMSF Q&A
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Register today and receive your free
SMSF E-book