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Getting the tax structure right for an investment property purchase: Thor McDowell

People considering purchasing an investment property need to consider the right tax structure for that purchase…writes Thor McDowell, SuperShift Affiliate Vivid Advisory.

The right tax structure to be used comes down to a combination of considerations. Perhaps the most significant is the tax effectiveness of the purchase. One option is to use a self managed super fund in conjunction with a limited recourse borrowing arrangement (LRBA) to be able to achieve “more bang for your buck”.

Did you know that using your superannuation funds as a deposit for an investment property purchase will mean the effective “cost” of the property may be reduced?

“When clients first hear of this concept, many of them are intrigued and ask me, how it is possible?”

I explain: the same property can be purchased at lower cost using a super tax structure as opposed to having to save the money for a deposit and purchasing in their own name. This is due to a lower tax rate within a superannuation tax structure. This really should be basic common sense, but many people seem to be hung-up of the “price” of a property rather than it’s true and effective “cost” to them.

Furthermore, the servicing of the loan interest and repayment of the loan capital will cost less using an SMSF opposed to traditional negative gearing strategies i.e. the loan is paid off with pre-tax dollars as opposed to post-tax, this actually saves the client money in their SMSF.

Did you know that for each $100 investment dollars you create outside of your super, the “cost” is up to $187.50? Inside an SMSF, the “cost” is dramatically reduced. This is demonstrated in the tables below.

Price Versus Cost Comparison Summary

Outside Super 

Inside Super 

Price (net income)

100

 

Price (net income)

100

Cost (gross income)

187.50

 

Cost (gross income)

118

Tax (46.5%)

87.50

 

Tax (15%)

18

Total saving per $100 in super: $69.50 

Feedback from property industry professionals is that an increased number of people considering buying a new property are considering using their super in this way.

Project Sales Manager at Sydney-based residential property developer Crown Group, Anthony Falas says:

“We're seeing clients become more and more interested in property investment within their super. It's a rapidly increasing purchaser demographic within our diverse range of projects. Given how important it is for our clients to get the right advice, we will refer them to a financial advisor such as Vivid Advisory."

For those of us who are new to buying property in super, how does one find out more?

It all starts by seeing a Vivid Adviser who will talk you through the steps involved.

Vivid Advisory are registered SuperShift Affiliates, by utilising the SuperShift process, which is both transparent and a “turn-key” solution for financial advisers (and their clients alike) this enables us to more efficiently assist our client in achieving their end goal.

In what could potentially be an otherwise daunting process (requiring the needs of other multiple professionals), Vivid Advisers are able to lead a client through a simple process and guarantee a successful and compliant outcome.

crownlogoAbout Crown Group

Crown Group is a leading Australian property group, active in property development and property investment in Sydney.

The company was co-founded by architect Mr Iwan Sunito and engineer Mr Paul Sathio in 1996.

Crown Group was awarded the Master Builders Association Excellence in Housing award 2012 for its innovative, waterfront development Sanctum by Crown and in 2007 was awarded the HIA (Housing Industry Association) CSR Housing Awards 2007 Apartment Project of the Year for the hugely-successful ICON at Homebush.

Today, Crown Group has grown to become one of Australia’s leading property development companies with successfully completed major developments in some of Sydney’s best locations including Bondi, Bondi Junction, Parramatta, Ashfield, Epping, Homebush, Newington, Pennant Hills and Rhodes.

Crown Group is currently developing four major projects, Top Ryde City Living, a seven tower development in Top Ryde, Viking by Crown, a 10-storey residential complex in Waterloo, V by Crown, a 27-storey residential tower in Parramatta and Skye by Crown a 20-storey development in North Sydney launched in June 2013.

Crown group will launch Viva by Crown, the final stage of Top Ryde City Living, in September 2013.

www.crowngroup.com.au

vividlogo

About Vivid Advisory:

Vivid Advisory is a fresh new face in the SMSF advice space. Vivid Advisory has been specifically set up to attract advisors who specialise in the SMSF area. The Vivid Advisory team are qualified and authorised SMSF advisors who educate and advise clients on the significant opportunities that SMSFs present.

Vivid Advisory focus on strategies that provide asset protection and tax advantage - this allows for greater control and helps Vivid clients make the right decisions. Ideal investments are complemented with the most effective structures and personalised strategies - enabling our Vivid client investments to work to their very best capabilities.

Disclaimer: The information provided in this document is general in nature only and does not constitute personal financial advice. The information has been prepared for information purposes only, and without taking into account your financial situation, needs or objectives. Before acting on any information contained in this document we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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