How Self Managed Super Funds (SMSF) Can Make Your Retirement Better

In the past, we bought the property as a home and paid it off over lifetime then moved into a smaller home in retirement. You may make $400k, but not enough to live on for the rest of your life.

The new way is to buy it as an investment property because it will cost less to hold as an investment due to depreciation deduction, interest deduction, maintenance expenses deduction, etc.  It may cost you as little as less than $100 in cash flow per week or even have positive cash flow. The property pays itself off and eventually gives you more net wealth when you retire.

You may be aware that the government is on the path to reduce the age pension payments as more older people increase the burden on the public tax system. So you have be smart and create your own wealth for retirement. On average, most financial planners will tell us that we need $1m to retire, or $50k p.a. to live at retirement to support us until the afterlife. It sounds impossible to save so much, but this is where a good adviser, financial advice and tax agent comes in to help you.

Superannuation or Super is a term used for the savings for our retirement when we stop working.

Super is simply a vehicle where less tax is paid.  Its earnings are only taxed at 15% and when you retire, its investment income is no longer taxed at all including selling properties at a zero capital gain tax.

The tank analogy of traditional super is putting money in and then taking it out until empty. But property leverages itself to increase its value making it easier to get to your $1m when retire. So keeping a well-chosen property portfolio at an early stage (anytime around your forties or earlier) is essential to reach your $1m goal.

To have property in super, you need an SMSF (Self Managed Super Fund).

The benefits of SMSF are as follow:

  • tax is only 15%
  • in pension phase (when you stop working in employment or business) there is no tax on the income of the SMSF
  • when you own some shares, franking credits obtained are worth more when taxed less in Super of only 15%. SO at worst you get 15% refunds of the franking credit.
  • no capital gain tax when retired
  • you can truly diversify the portfolio with property, financial instrument and cash investments in one super unlike the industry or retail fund
  • ability to leverage
  • more control over your investments suit your risk profile better
  • it can create a lump sum to contribute to buy another property in SMSF when you can no longer do outside of super in a personal situation


So what restrictions on properties we can buy in SMSF?

You cannot acquire a property from a related party, so make sure you set up an SMSF before you sign a contract otherwise you are buying it from yourself, a related party. Other restrictions include that the sole purpose of buying has to be to provide a benefit in retirement and you cannot make improvements if you are using borrowed money.

What should you consider before buying?

A lot of research needs to be done before purchasing the property and if indeed an SMSF is right for your circumstance.

  • Questions you may need to ask yourself like what was it worth ten years ago?
  • what is it worth today?
  • who should own it, eg individually or jointly with a spouse?
  • is it value for money, who are the appealing buyers, etc?
  • What factors will change its value in the next ten years?

Historically, property prices double every ten years and it is a great investment at the moment as interest rates are low and some experts are tipping a spike in properties soon. If both you and your partner are earning a good income, you should consider taking advantage of power to buy property which may not last forever due to an addition to the family or change in employment status.

Talk to us about building your property portfolio whether in or outside an SMSF if for you on 83374460.

what does an SMSF Costs to run and set up?

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