One of the most tax-effective ways to build wealth for retirement is through a Self-Managed Superannuation Fund (SMSF).
Your SMSF can borrow to purchase property, such as your business premises, commercial, industrial or residential property. The property is then protected from creditors, as it is part of your SMSF. Superannuation contributions can be used to make principal and interest repayments on the loan and you will receive tax deductions for these contributions.
There is no Capital Gains Tax (CGT) payable on the sale of the property when your SMSF is in pension phase. Even if you sell before pension phase, the CGT is only 10 percent. Your SMSF can also take advantage of franking credits attached to dividends received from public companies.
If you are a business owner, a very attractive way to create wealth in your SMSF is through buying your business premises.
How can this happen?
Your SMSF can borrow to purchase real property (can be from you, but only, your business premises), purchase other commercial, industrial or residential property (but not from you). Your SMSF funds the deposit, stamp duty and legals, borrowing the balance to complete the purchase. A special trust purchases and owns the property and allows the lender to take a mortgage over the property to facilitate the loan for the Superfund. Your SMSF receives rent, pays the interest & property outgoings. The aim should be to have a positively geared property, so you can use super contributions to, pay down the loan, or make other investments.
So why do it?
The asset is protected from your creditors, as it is part of your SMSF. Superannuation contributions, which are tax deductible, can be used by the SMSF to make principal & interest repayments on the loan. And, there is no Capital Gains Tax (CGT) payable on the sale of the property when your SMSF is in pension phase. This can be a big tax saving for you.
So even if you sell the property before your fund is in pension phase the CGT is only 10% of any gain, compared to the maximum of approximately 24% of any gain made in your own name.
SMSFs help you save tax and create wealth outside of your business and family home, forming an important part of your retirement plans.
You may like to start accumulating superannuation in a SMSF now by putting automatic transfers into place.
For more information please email firstname.lastname@example.org or call 9526 1211.