Property Depreciation Schedules - The New reality

The Secrets to Investing Using an SMSF

investing in SMSF

You Could Use Your SMSF to Save on Your Tax Bill

You can use a SMSF (self-managed superannuation fund) to buy an investment property in Australia. However, this has previously been quite difficult. Many lenders would not allow SMSFs to borrow money, which means they had to fund the full purchase themselves.

However, that changed after the 2017 Budget. Now, a self-managed super fund can borrow the money needed to fund the purchase of an investment property in Australia. As a result, those who previously couldn’t afford to use their SMSFs to buy an investment property in Australia now have a pathway to do so.

The first thing to remember is that you shouldn’t set up a SMSF solely to buy a property. However, having it available makes sense for a lot of small business owners. After all, a business owner can occupy the SMSF’s investment property in Australia, as long as they use it for business purposes.

However, managing an SMSF takes a lot of time and hard work. To help you along, we’re going to show you some of the secrets of using an SMSF for property investment.

Getting Started

You’ll need some money in your SMSF before you can use it to buy an investment property in Australia. How much will depend on your situation, but as a rough guide you should aim to have $200,000 available.

This will help you to cover the deposit and the fees associated with taking out a home loan. Furthermore, you’ll probably have some money left over for diversification. This Depreciation Calculatoris important, as investing only in property could come back to bite you if the market crashes.

The funds should come from every SMSF member. You don’t have to fund the entire thing yourself.

Know How Much You Can Borrow

Most lenders are still quite wary of lending to SMSFs. That shouldn’t come as a surprise, as many have only just started doing so following the 2017 budget. As a result, it’s unlikely that you’ll be able to secure a home loan with a loan to value ratio (LVR) above 80% of the home value.

In fact, most lenders prefer to offer 50% LVR on SMSF loans. Having a 50% deposit available for your investment property in Australia increases the lender’s confidence and puts the property closer to being positively geared.

Making Repayments

Of course, you need to make repayments on the home loan once you’ve secured it. This is where the self managed super fund can really help an investor. You can use your super contributions, which you can deduct from your taxes, to make the repayments. The same goes for any rent or other payments that the SMSF receives.

As a result, you often won’t need to spend any of your own money to repay the home loan. Better yet, you can deduct quite a large portion of the repayments from your tax bill. Of course, it’s best to work with a tax professional to ensure you set up the correct structure for this.

The Tax Benefits

Depreciation Quote ScheduleLet’s look at the tax benefits of buying an investment property in Australia using an SMSF in more detail. For one, the fund only has to pay a maximum tax rate of 15% on any income the property generates.

However, the bigger benefits come if you choose to sell the property. Assuming the SMSF has held the property for at least one year, you only have two-thirds of the capital gains tax (CGT) you would have paid on a property you personally own.

Better yet, both of these tax contributions disappear if the SMSF keeps the property until its members start claiming their retirement pensions. As a result, retired SMSF members can benefit from the property’s income, without having to pay any tax. They also receive larger lump sums if the SMSF sells the property because they don’t have to pay CGT.

Can Everybody Do It?

Property investing using an SMSF sounds appealing, and it can provide you with a lot of benefits. However, it’s not for everybody.

As mentioned earlier, you should avoid using your SMSF to invest in property if it doesn’t have a large sum of cash available. Diversification is crucial when investing, so you don’t want to be in a situation where your SMSF relies only on the property’s income. A lost tenant or property market crash could cause major problems.

Furthermore, those on low incomes should think twice about investing using an SMSF. Remember that you have to make regular SMSF contributions. These contributions benefit you when it comes to your taxes, but they’re also long-term benefits. You may struggle in the short term if you don’t have the money to make regular SMSF contributions.

Wallabies Win affects Overseas Investment

overseas investment

After an early wake up on Sunday to watch the Wallabies have a brilliant victory over our old nemesis, England (commiserations guys) I was drinking my 3rd coffee of the morning and in a euphoric haze I starting to wonder to myself, how many teams are playing in this tournament?

It turns out there are 20 teams competing in England at the Rugby World Cup, however, as my mind rambled, counting which countries are included I dozed, and somehow drifted onto how many countries Washington Brown have prepared depreciation reports for over the last few years (because everything relates back to work, right?). It turns out, we have carried out property depreciation reports for a whopping 29 different countries to date, and by the end of the week that number will increase to 30! Go us!

overseas investment

Depreciation Quote Schedule The scope of work we are currently experiencing is really interesting from a Quantity Surveying perspective and is becoming increasingly varied, from apartments and houses in the UK and USA, multi million dollar villas in Monaco, ski chalets in Bulgaria, and even blocks of apartments in Iran.

Our clients also vary from new migrants renting out their former homes, Self-Managed Super Fund Trustees looking to spread risk, ex pats coming to work in Australia, or returning home from overseas posting, as well as mum and dad investors expanding their investment portfolio.

To me this really reinforces the global economy we now live in, and what a wonderful diverse melting pot of nationalities Australia is made up of.

If you have bought an overseas investment property, or you migrated to Australia and are now having to declare your rental income on a property you still own in your home country to the ATO, you might be entitled to claim depreciation on any overseas property you still hold and reduce your taxable income.

When claiming on an overseas investment property you need to be aware that there are some differences to Australian investment properties in regards to ATO rulings.

Three of these differences are:

  1. The building allowance component is only applicable for residential properties built after 1990, not 1987 as it is for Australian residential investment properties. (NB.all investment properties qualify for plant and equipment component)
  2. Construction costs vary from country to country and in in our reports are estimated at the local rates, not Australian rates. We then convert into Australian currency at the prescribed ATO exchange rate
  3. Just like in Australia, overseas investment properties start depreciating from the date you take ownership. However you can only claim tax deduction from the time you became an Australian tax payer, so it’s important to provide this information before proceeding to ensure it is worthwhile for you to have a report completed.

If you’re unsure if your property qualifies for depreciation allowances, or whether you have owned it too long to be eligible to claim depreciation deductions, give one our tax depreciation specialists a call and we can talk through your investment scenario to see if there is a benefit in having a report prepared.

Click here to get a Property Depreciation Quote

What Drives You To Succeed?

what drives you to succeed “What drives you to succeed?”, was a question I was recently asked at a seminar.

It’s an interesting concept to ponder.

Thinking back, I think I was motivated to succeed from an early age. I saw my father work hard all his life to support 5 kids and then lose all his superannuation in the late 1980’s when he invested it all in a company called Estate MortgageDepreciation Calculator

They proclaimed to be “safe as a bank”, but in reality were just lending to developers and offering a slightly higher interest rate on deposits.

So that extra 1% or 2% my dad was supposed to get cost him his life savings. It shattered him.

I guess part of me wanted to make him proud and prove that I could “make it”.

By the time I was 30, when he passed away, I had my own business and he saw that I was doing OK and I know he was proud.

Nowadays, I get inspired by meeting incredible people.

Whilst there are shonks in the building industry, there are also some creative and passionate people out there too.

Most successful developers don’t do it for the money, so what drives them?

It’s generally the challenge that they love, the creativity and the ability it gives them to leave their mark on society.