Property Self Managed Superannuation Fund SMSF

Setting up your SMSF (Self Managed Super Fund)

Superannuation is often an untapped resource. More awareness is surfacing around the benefits of using your super to buy property. In essence, how you manage your superannuation will determine your retirement lifestyle.

Unfortunately, Australians typical disregard their superannuation, not realising that it will either be their largest or second-largest (own-home) lifetime security.

As finance guru Robert Kiyosaki says: “Always remember that your future is determined by what you do today, not tomorrow.”

Photo by Daniel Hjalmarsson on Unsplash

No out of pocket personal expenses

At first, most of our Clients shy away from using Super to buy property, until we run through the benefits and explain how all fees are taken from their existing super balance, meaning NO OUT OF POCKET EXPENSES keeping your personal savings out of it to get started.

The SMSF (Self Managed Super Fund) set up cost and the DDP service fee is taken directly from your super.

CASE STUDY: Superannuation Fund vs. SMSF

Scenario 1 – a man, aged 35 with a super balance of $120K leaves his superannuation in his super fund and it continues to grow at a rate of 5% per year. At retirement, he is left with $900K.

Super left in Super fund

 

In Scenario 2 – the same man uses his super to purchase a property in Sydney for a purchase price of $400K. He buys the property at the age of 35 via a SMSF. At retirement, his property is valued at $6.0million.

The reason for the dramatic difference between the 2 scenarios is due to the capital increase. The capital increase is measured by the difference between the current market value of an investment (i.e. at retirement) and its purchase price.

In scenario 2, the person is borrowing 80% of the property value of the purchase price (i.e. $400K). Thus, his capital appreciation is on the $400K as opposed to appreciation on the $120K in scenario 1.

DDP Property work closely with Financial Planners regulated by ASIC, to set up your SMSF. 

What is included in the set-up fee?

To establish the SMSF, the financial planners will;

  • Create the Corporate Trustee Constitution (legal documents) for the SMSF Register the Corporate Trustee with ASIC (including the ASIC fee)
  • Create the SMSF Deed (legal documents)
  • Australian Taxation Office (ATO) Registration of the SMSF TFN & ABN Generation with the ATO
  • Bank Account Establishment with Macquarie Bank Transferring of Funds ($) from current Super Funds
  • Advise you on how to make employer contributions into the SMSF Advise on the insurance transfer from industry/retail fund to SMSF & implementation
  • Cancellation of old insurance policies if required

To establish the Property Trust for the property purchase the financial planners will;

  • Create the Corporate Trustee Constitution (legal documents) for the Property Trust
  • Register the Corporate Trustee with ASIC (including the ASIC fee) Create the Property Trust Deed (legal documents)
  • Provide the lending bank with a Financial Advisor sign off to authorise the loan

What are the costs?

The total cost is dependant on the SMSF setup required. 

Other inclusions:

Financial Planners Advice & recommendations for transferring or leaving existing insurance policies. All accounting and financial advice costs plus the legal cost for documents (deed & constitution) plus ASIC & ATO registration fees.

Other benefits of SMSF

Tax benefits – A super fund’s tax rate is 15%. This means if your property has a net positive cash flow of $20,000 per year, inside a SMSF you would only pay $3,000 in tax. However if it was purchased in your own name, it would depend on your marginal tax rate, however your average tax would be anywhere between $7,000 to $9,000.*

Combining super with friends/family – You can combine your superannuation balance with other people – this can be with friends and family*. This works particularly well when your super balance is too low to buy a property on your own.

SMSF structure:

The SMSF diagram (BELOW) shows the 4 entities that are established for a client. It shows the Property & Loan being held within the Property Trust, and the Bank Account, Shares, Managed Funds being owned directly by the SMSF.

*Disclaimer: The information provided on this document has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your FINANCIAL ADVISER before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither DDP PROPERTY nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information. For more information visit www.ddpproperty.com.au/disclaimer

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