Aspirations, homes and households where fell apart once the Global Financial Crisis or GFC hit a large percentage with the men and women and economic system. Many of these people are asking the questions: how do I recover from the GFC and how can I make my hard earned money work more effectively.
Two common strategies you can apply:
1. Take on a more high risk investment allocation i.e.small cap firms; and/or
2. Borrow money to improve your investment exposure.
Self Managed Super Funds and Security
People still shocked by the sudden drop in their superannuation account balances. Have been driven to look away for investing in bricks and mortars. Majority of people will be more secure to settle on option 2, but most likely certainly not for option 1. Previously to invest in bricks and mortar through superannuation, you had to have got all the money to make the purchase, making it out of reach for most people. The rules governing superannuation transformed for the trustees in September 2007. Trustees can now be lent money to commit on assets such as properties using their superannuation. This turned a great opportunity for the trustees to invest and help increase their wealth.
Investing in property using an SMSF
A well-rehearsed strategy is often a good way to enable you to build up your wealth back affected by the Global Financial Meltdown and overcome your superannuation assets. A non thorough list of factors why you would consider the strategy:
1. Be able to purchase an asset you can not normally afford;
2. Hold the property for less than 12 months and pay 15% on capital gains, otherwise it is only 10% and possibly 0% if the SMSF is inpension phase. Now you don’t need to to bother with the 46.5% taxes for assets held in your own personal name. Potential massive tax savings.
3. You pay only 15% on rental income in contrast to personal tax brackets of up to 46.5%
4. Utilize your 9% employer superannuation benefits to help you service the loan along with the rental income. If needed you may make concessional contributions to create up any shortfall. These concessional contributions is usually claimed as tax deductible items, which will assist in cutting your personal income tax liabilities.
5. All borrowings with interests are tax deductible by which assists in lessening income taxes within the expenses of SMSF.
6. The recent adjustment in legislation decreased the maximum annual contributions dependent upon the age of the person, that tells us that borrowing in SMSF is now easier and can be an benefit as long as you know what to do with it. Placed simply, borrowing is actually an implies for families to increase the size of their superannuation assets if restricted by the contribution rules.
Borrowing to invest in property through a SMSF could be a simple and easy and effective method to make use of your existing superannuation balance. However, as the trustee of a SMSF, you MUST be aware of the disguised traps in getting the structure & finance facility correct, as the tax penalties can be intense and you run the risk of being prevented from operating an SMSF in the future.