Category : SMSF

The Traps of some Industry Super Funds – A Precautionary Tale 

As from November 19, the first sizable industry fund, Australian super, will be making some significant changes to their fund, that may cause some concern for investors, especially if they were coming close to retirement.  These changes come as amid fears of a potential property market plunge.  Amongst the changes, property funds will be frozen for up to two years in the event of a crisis. Furthermore, the fund will prevent members from investing more than 70% of their savings in its property portfolio option.  

According to Kofkin Bond and Co, one of the most challenging changes will be the rule that states that, for up to two years, the fund has the right to freeze any attempts at withdrawing savings from the property option, as well as prohibiting funds out of, as well as any new contributions into, the options.  

Capital Gains Tax Changes to Hit Expatriates

Capital Gains Tax changes will mean that Australian expats will be denied the capital gains tax (CGT) main residence concession if they sell their former main residence while living abroad.  To date, this stands to affect over 100,000 Australians who currently live and work overseas whilst owning property back home. 

The GST tax advisers acknowledge that the Senate committee believes the CGT exemption may provide improved housing outcomes for Australians. However, they believe that there may actually be a counterintuitive reaction from expats as they decide not to sell properties until they return to Australia, creating a ‘lock-in’ effect rather than improving the quantity of housing inventory for sale. In other words; to avoid losing their ‘retirement plan’ to taxes, they will hold onto their property, potentially not selling it for decades, contributing to a lack of housing stock for sale. 

In Hong Kong, expatriates have come together in an attempt to create a campaign that would influence the Senate Committee to overturn the proposal. They believe that such a policy will make it difficult for firms, both Australian and international, to employ Australians to work offshore if they have the potential to have life savings wiped as a result of selling their home while not residing in Australia. 

SMSFs: Know your options for investing in property

The purchase of property by an SMSF has long been seen as an attractive option for investors, however, the rules regarding any limitations are often misunderstood.

We have put together this article as an attempt to clarify each of the ways property can be held by an SMSF.

Option 1

SMSF acquires property outright

The simplest form of ownership by an SMSF is to own the property outright; The SMSF having purchased the property with cash.

Key points

  • The purchased property is to be registered in the name of SMSF trustee, however, if that is not possible for legal reasons, then a caveat, instrument or declaration of trust should be executed over the property.
  • The SMSF’s share of the rent is to be paid to its bank account.
  • The SMSF’s share of property expenses should be paid or accounted for in the fund. Expenses may be paid by a member, or another party, however, they must be reimbursed to the payer to ensure they are not recorded as a contribution. If the payments do end up being treated as contributions, it’s imperative the relevant contribution cap is not exceeded in order to avoid excess contributions tax being applied.
  • The property cannot be used as security, this includes mortgages, liens, caveats or any other encumbrance.
  • The property can be rented to a related party – provided it’s a premise used for business which is leased on market terms.