Everyone is talking about SMSF’s these days. Recent changes to the laws for operating SMSF’s have in our opinion made them an option that every one of our client’s needs to consider.
Very simply, a SMSF is a super fund that you fully control. You make all the investment choices – including shares, managed funds, property, and cash. SMSF’s can now borrow from a bank to purchase investment properties. Strategy
Choosing the right STRATEGY for your SMSF is the key.
Here’s a brilliant strategy called the Retirement Home Strategy:
An investor finds a property they’d like to live in during their retirement. They use money in their SMSF as a deposit and borrow into a special super fund borrowing arrangement with the bank to complete the transaction.
Warning: A member (or a relative of a member) of a SMSF by law cannot live in a property owned by a SMSF.
However, while the property is owned by the SMSF it’s rented to UNRELATED INDIVIDUALS for a market-based rent.
Upon retirement the SMSF members start a pension and sell their current family home. They then use the proceeds from the sale of their home to buy the property from their SMSF at market rates.
The sale of the SMSF-held property is capital gains tax free because the SMSF is in pension phase. When the transaction is complete the super fund has liquid assets to pay their retirement income.
Estate Planning
Another key reason for using a SMSF is that it gives you very exact estate planning options. For example, you can nominate a specific dependent (spouse or child under 18) to receive your super benefit if you die. Unlike a Will, this cannot be contested.
Would you like NO TAX on your Investments?
Once you turn 60, you can start to pay yourself a pension from your SMSF, and there is NO tax on income from the SMSF and NO tax on any capital gains.
This means you can gradually sell down assets (including property) held in your SMSF and pay NO TAX regardless of any capital gain you make.
We believe this is an absolutely brilliant outcome – and it’s possibly far better than owning an investment property in your individual name or in a Family Trust.
Please contact our office TODAY and make a time to discuss your family’s financial situation with one of our highly qualified Financial Planners.
Your appointment with us may mean you have hundreds of thousands more in assets when you retire. What a difference that would make!
Tax Planning Strategy #2:
Big tax refunds for prepaid interest for a capital protected share portfolio (with NO cash required by 30 June)
Apart from the usual general tax planning strategies (eg. incur business expenses prior to 30 June to claim a tax deduction this financial year), there are only 2 main ways to reduce your tax:
1. Increase superannuation contributions; and
2. Prepay interest on borrowings for investments before 30 June.
With the solid performance of equity markets over the past 9 months, we have seen a significant amount of interest by investors looking to leverage back into the share market with the benefit of capital protection and tax efficiency.
This coupled with a reduction in volatility of shares and reduced borrowing costs have made share investments as attractive as ever.
Use Tax Money to pay for your Share Portfolio!
Here’s how this strategy works:
You borrow an amount (say $50,000) from the bank to purchase $50,000 of blue chip shares before 30 June. Some banks will lend you a further amount for you to use to immediately pay back to them to prepay interest on the original $50,000 loan for the next 12 months.
Assuming an interest rate of 8.5% and that your individual tax rate is 46.5%, using this strategy would result in a new tax deduction for you of $3,475. This would result in an additional TAX REFUND to you of $1,615.
You receive all dividends from the shares throughout the year.
You cannot lose your Capital!
If you use a borrowing product such as the Macquarie Geared Equities Investment, your shares are 100% protected. This means that if the share market goes down, you don’t lose any capital. And your shares go up in value, you keep all of the upside.
This is ideal for investors who want to have share investments but who don’t want to have any chance of losing their capital.
Here is a brief summary of the features of the Macquarie Geared Equity Investment (note that other protected share investments have similar features):
- 100% leveraged and capital protected via a Limited Recourse Loan
- Interest cost deductible up to benchmark RBA limit (currently 6.95% p.a.)
- Menu of around 80 ASX listed securities, ETF’s, LIC’s or pre-selected portfolios put together by Macquarie Research
- Full dividend and franking entitlements
- Terms ranging from 1 to 5 years
- Each security protected in its own right so no netting off winners and losers. Winners are kept and losers are handed back.
- Minimum investment $50,000 equities
Interest rates are dependent on the stocks chosen, the term of the investment, and the interest type (fixed or variable).
Your Action Plan
If you are looking for some tax relief by leveraging back into the share market, but want the added security of 100% capital protection, contact us TODAY and one of our highly qualified Financial Planners will discuss your financial circumstances with you and provide you with a Statement of Advice tailored to your circumstances.
In summary, instead of paying some tax, you can use this money to prepay interest on a loan for shares with full 100% capital protection for the shares.
It’s a great option to consider – contact us TODAY to implement this strategy before 30 June and save tax!