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Offline tdc911


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Offline 360c

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IMHO one should be able to assume that the even with changing rules, the government will never make super taxed at a higher rate than your maximum tax rate.  In the meantime, it really is the best investment vehicle however it's absolute value is limited because of the limits in contributions.

The tax base is shrinking as the poulation ages and the birth rate declines. The Government WILL increase the tax rates on contributions, earnings, withdrawals or some aspect of SMSF's without a shadow of a doubt. The age limits to access the funds will also increase over time; but so will the average lifespan. All that notwithstanding, there has to be incentive to make people save to fund their own retirement, so the tax rates will never exceed personal tax rates. They will probably never exceed the company tax rate either or the clever and wealthy types will divert money into more tax effective investment vehicles.

So IMO the superannuation system will always be the most tax effective method of investing; but their will be increasingly stringent contribution limits to stop people accumulating more than is necessary for a normal retirement. ATM 11% of SMSF's have more than $2 million in assets and 1.8% have more than $5 million in assets. There are some SMSF's that have many tens of millions. In other words far more than is necessary to fund a persons retirement and that's what the tax office will seek to stamp out.



Offline 360c

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Thanks for asking Scott. I do not have a SMSF.

The intention is to set one up, transfer $100k out of my existing super into it to allow the purchase of 1 simple investment property at the 70-80% LVR.   Basically just trying to leverage it a bit.

Ok, first up SMSF's cost a bit to set up and have significant annual running costs so you need a fair bit of money in them to make it worthwhile. You are probably a bit light on in funds; but for the reasons I mentioned earlier plus your young age I would still have my own SMSF and aim to build it up as fast as possible. There are also very strict and onerous regulations governing SMSF's and the Trustee. The penalties for getting it wrong can be huge and catastrophic, so setting one up and taking on the role of Trustee shouldn't be taken lightly. The SMSF's also need you to be an active, educated and savy investor to be successful, they are definitely not a "set and forget" investment and are not for the financially inept.

I know you love property investment and already have your own properties outside super from previous posts. I don't know if you do any direct share market investing; but I am guessing you are already overweight in exposure to property. You are going to be adding to that overexposure by investing your super in another property. ATM I guess you have a managed industry super fund through your employer which would no doubt have a fair level of investment in shares, giving you at least some level of diversification.
Now if you invest your entire super into one property in the fund you have no diversity at all and consequently a huge risk factor as all your eggs are in one very small basket given the geared funds available to the SMSF. Personally I think you would be better off investing in quality blue chip shares that pay a strong fully franked dividend than going into more property. Your yield will be better than residential property and you don't have the running costs either. You also get a refund for the franking credits from the dividends
since the SMSF tax rate is lower than the company tax rate, adding to your returns.

Anyway lets assume you ignore that and proceed with the property purchase in the superfund. In my experience the costs quoted in an earlier post are way light. In my recent SMSF commercial property purchase the costs were:
Accountant- $8140
Bank for loan set up- $6500
Lawyer- $4997

Total- $19,637.00

Now admittedly it was probably a bit more complicated and time consuming than what you are contemplating; but these loans are VERY expensive to set up and the paperwork and utter crap that is required by the banks is simply incredible. Without a doubt the most time consuming and expensive headfuck of a loan that I have ever done in my 30 years in business. To the point where I almost pulled the pin on the whole loan and paid cash for the property instead. The only thing that stopped me was if I had done that I would have been overweight in property in the fund……….investment diversity is a must.

One further thing to conisider that hasn't been mentioned with these superfund property loans is that you are not allowed to fundamentally change the nature of the property. In other words you can't buy a property and develop it. You are stuck with the existing property and the yield you can screw out of the rent. Big negative as you should always aim to buy a property that you can do something with to increase the returns.

Now the LVR ratio's that have been quoted are a bit high too. They have tightened up since these loans first came about and although you can still get 70% or so, the interest rates are too high. I went with Bendigo Bank who do a maximum of 60% LVR; but the interest rate is pretty close to housing loan rates i.e cheap. I only went to 40% LVR as I wanted to be very conservative and positively geared.

That should give you plenty to think about for now; but I am sure I have forgotten to mention a few things which I will add when/if they come to mind in the discussion.

This is a profile of the average SMSF from ATO statistics BTW:

http://www.superguide.com.au/comparing-super-funds/typical-smsf-trustee-profile

IMO about 1/3rd of them would be better off with a managed industry fund :)




Offline Aircon

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Holy crap.  What a post.  Well done Scott.  Awesome information.
I love my car. Buy your own



Offline 360c

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Holy crap.  What a post.  Well done Scott.  Awesome information.

I spend pretty much all day everyday reading financial stuff and working on various investments.
I pay staff to do the actual work :)



Offline mhh

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So IMO the superannuation system will always be the most tax effective method of investing; but their will be increasingly stringent contribution limits to stop people accumulating more than is necessary for a normal retirement. ATM 11% of SMSF's have more than $2 million in assets and 1.8% have more than $5 million in assets. There are some SMSF's that have many tens of millions. In other words far more than is necessary to fund a persons retirement and that's what the tax office will seek to stamp out.

And that's the problem with super. If you've been on a high income, a retirement fund balance of $5mill isn't huge if you want to continue a luxury lifestyle. The contribution limits don't allow real wealth accumulation. The more net worth you have, the less useful super becomes.



Offline shack

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And that's the problem with super. If you've been on a high income, a retirement fund balance of $5mill isn't huge if you want to continue a luxury lifestyle. The contribution limits don't allow real wealth accumulation. The more net worth you have, the less useful super becomes.

Coupled with regulations that change at the whim of each government. You need to look at super as something that's yours but is being f**ked with by Government as they see fit. Its really not yours until you get the funds personally. My view, do NOT put anything more than statutory requirements into super as its a one way street. Better to use your funds yourself and you be in control.



Offline looney


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Ok, first up SMSF's cost a bit to set up and have significant annual running costs so you need a fair bit of money in them to make it worthwhile.

.......


IMO about 1/3rd of them would be better off with a managed industry fund :)

Thanks again Scott, your balanced approach is always appreciated.

In fact my exposure to property is significantly lower these days, I only own a small unit complex in addition to my home and thats it.  the rest is in managed funds/shares which are balanced but not property based.

there is actually an ulterior motive for doing this in addition to growing the Superannuation.  on the Opposite side of the river to my home is a unit complex (12 waterfront townhouses).  It is old but tidy, and the precinct is approved for 10 story development.  Part of my thinking is if I can buy a unit in there (preferably through a SMSF) then for at least the next 25 years I will have little/no motivation to sell that property, in turn maintaining my view for at least the next 25 years.

That said I do think they would be a good investment owed to their location and rental return. but rather than purchasing as an individual, If purchasing through a SMSF, I'd have greater motivation to simply hold and leave in this case.

because all of the discussions had above regarding preservation ages and tax implications do concern me, especially given how many years away my preservation age is, there's nothing to stop the government from bending people in my age group even more than they already have. so I might as well make it work for me now as well as the future.



Online Fil-Ski


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Coupled with regulations that change at the whim of each government. You need to look at super as something that's yours but is being f**ked with by Government as they see fit. Its really not yours until you get the funds personally. My view, do NOT put anything more than statutory requirements into super as its a one way street. Better to use your funds yourself and you be in control.
My thoughts exactly.



Offline looney


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another curiosity I have regarding this is in relation to occupation of the premises.

I understand that it has to be at arms length, and you are not permitted to occupy/utilise a property in a SMSF (unless its commercial).

but when you reach preservation age and have access to your Superannuation, would you be permitted to move into a property owned by your SMSF?  if so it would be a good retirement strategy for younger people.  find the place you'd like to live when you retire, purchase it with Superannuation now.




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