In simple terms, 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 borrow from a bank to purchase investments, but this opportunity might be limited.
Choosing the right STRATEGY for your SMSF is the key.
One great strategy can be to purchase your business premises in your SMSF, or purchase an existing commercial property, that will be owned by your SMSF. Either strategy means that you can get your Super money working for you now and save significant dollars.
If you already own a commercial property outside of Super, it may be worthwhile looking at transferring the property to your Superannuation Fund. It may help to free up cash, and possibly even reduce your personal non tax deductible debt on your mortgage.
One of our clients owned a commercial property outside of their Superannuation Fund. The property was worth $275,000, with a small loan of approximately $50,000 left on the premise. They netted $205,000 (after Capital Gains Tax); that left them with only $50,000 on their personal mortgage. A great outcome for the client.
Furthermore, they now have net tax savings of $2,175 every year because the income from the property is taxed at 15%, not 34.5% and 39%.
It is important to review any stamp duty implications with the transfer of property, and best to seek advice as to whether you will have to pay stamp duty on the transaction.
Super Share Strategy
Another great strategy can be to lend your SMSF money to buy shares. The rate that your Fund has to pay you is determined by the ATO (and is a pretty good rate). By lending the money to your Super Fund, you will get a great return on your money, and potentially help with your contributions tax inside Super. It can also provide a little bit of leverage in your Super; making it work harder for you.
The benefits of this strategy can add up to tens of thousands of dollars for those with a decent balance ($300,000), and contributions ($20,000 p.a.).
Another key reason for using a SMSF, is that it gives you 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 the age of 60, you can start to pay yourself a pension from your SMSF. There is NO tax on income from the SMSF, and NO tax on any capital gains; subject to the transfer balance cap (currently $1.6M).
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.
This can have an absolutely fantastic outcome - and it is possibly far better than owning an investment property in your individual name or Family Trust.