How to get More Power out of Your Super Fund

The first thing to note is that you can use Super to buy property. And the strategy has huge advantages for people approaching retirement.

The benefits of your Super Fund owning property:

• You can use the negative gearing aspects of a super-fund property in your personal tax
  
• You can pay down personal debt with your SG Levy and salary-sacrifice money taxed at 15% - instead of 48.5% (This alone will save thousands.)
  
• You can sell the investment in retirement without paying Capital Gains Tax
  
• Its rental returns in retirement are tax-free

It works like this:

John and Mary Smith have equity in their home. They use this as collateral for a loan to buy an investment property. The borrowed funds, plus Super Fund cash as the deposit, are pooled within a personal unit trust, which buys the property. The debt is borne by John and Mary, not the trust, and as such can be negatively geared within their personal tax returns.

Annually, of course, 9% of income is legislated in to their Super Fund, plus they can salary-sacrifice money at 15% tax. This money can be directed into the unit trust, and then returned, tax-free, as a capital return to John and Mary, who use it to pay down the original debt. In other words, John and Mary use money taxed at just 15%, not up to 48.5% to pay off the property debt they have in their own name. Thus, more money than they would normally have ‘free’ goes towards the debt and they pay down quite significant chunks annually. The cumulative effect of this after 5 – 6 years is huge.

The benefits thus far:

• Invest in the ‘bricks and mortar’ of property within a Super Fund
  
• A super fund can’t borrow, but you can
  
• Negative-gearing on your personal account
  
• Pay down personal debt with nominal tax taken out
  
• Massively accelerate the pay-down of that debt with employer super fund contributions

The benefits into retirement:

Once John and Mary retire, the benefits continue. Due to the capital returns from the Super Fund, the property is now substantially owned by their Super Fund. Therefore the rental income is tax-free, and importantly, should they sell the property there is no capital gains tax.

This simple strategy has helped with the two biggest issues in owning an investment property:

• Paying off the debt before retirement
  
• Capital gains tax if sold
  

What a client will need:

• Equity in their own home (or another asset) as security against borrowings
  
• An income with Super Guarantee Levy contributions and the ability to salary-sacrifice
  
• A self-managed super fund
  
• A unit trust
  
• At least 6 years to retirement

It’s an exciting strategy with the potential to save literally thousands of dollars and go into retirement with significant investments. If you would like to find an experienced financial planner in a convenient location, click here.

Disclaimer:

No investment advice provided to you.
This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.