Saturday, 8 November 2014

SMSF Trap #1 - Thinking the only way to hold a property is in an SMSF

This is the most common mistake you can make; just jumping on the “SMSF band wagon” and thinking since everyone else is buying a property in an SMSF, that you should do the same. There are taxation advantages of purchasing a property within an SMSF but there are also taxation advantages of buying the same property outside of an SMSF. For example, if the property is making losses, that is, it is negatively geared, and you have no other income being generated within the SMSF to absorb those losses completely, then you have no immediate tax benefit. The losses get carried forward within your SMSF but there is no direct benefit in reducing your personal tax.

Too many times I’ve seen people who would have been better off just buying the property in their own names, outside of an SMSF, rather than within one.  With a property outside an SMSF, you will enjoy the full tax benefits of offsetting all property losses against your own salary and wage income, thus creating a better tax refund to you. A word of warning here; your superannuation money needs to be growing not decreasing so it can provide for you in retirement. Common sense means that any investment held in your SMSF should be making you money and increasing your retirement nest egg, NOT reducing it. If you buy a property in your SMSF and it is consistently making losses every year, then you have a problem. As trustee of your own SMSF you MUST comply with the Sole Purpose Test. This means the sole purpose of your super fund is to provide you with benefits upon your retirement. You will breach this requirement if your SMSF continues to make losses.

A benefit of having a property in your SMSF is that when you sell it in pension phase, the property will be exempt from Capital Gains Tax. However you can only get that exemption after you retire and are getting a pension and for a lot of people, this could be 20 years or more from now. I have a specific video on having your own SMSF and I suggest you watch it. Click on here to view.

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1 comment:

  1. Accounting and Tax specialises in Self Managed Superannuation Fund (SMSF) Audits. SMSF Audit is the only service we provide to SMSF Accountants.


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