Case Study: Self-Managed Superannuation Fund (SMSF)

Objective: Investing via SMSF may result in faster wealth accumulation with greater tax benefits

Firstly it is vital to obtain professional advice from your accountant and financial planner if you are borrowing money using your Self-Managed Super Fund (SMSF).

Sam and Dianne are both in their late forties and keen investors who have diversified investments. They have their home, one residential investment property and a share portfolio. They would like to buy a commercial property, but they do not have sufficient equity at the moment in their residential properties.

After discussing with their advisers and upon completion of a statement of advice, they recommended that they look at purchasing a commercial property in their super fund as this will further develop their wealth creation strategy.

They have an existing SMSF which has investments and cash of around $310,000. They are employed and their super contributions from their salaries goes into this fund.

Of the total investments, $100,000 is in shares which they don’t want to sell at the moment. This leaves them $210,000 in cash to put towards a property. The bank will provide them with a loan up to 65% of the value for a commercial property. If they wanted to purchase a residential property then the banks would provide a loan up to 80% of the value for a residential property.

Sam and Dianne found a tenanted commercial property to buy for $500,000. Based on the advice from their accountant there was no GST payable on the purchase of this particular property.

Recommendation:

We recommended a SMSF commercial loan for $325,000. Sam and Dianne contributed $205,000 from the cash in their super fund. Their contributions comprised 35% of purchase price – $175,000 plus approximately $30,000 for stamp duty and set up costs. This left Sam and Dianne’s SMSF with liquid funds of $105,000.

The rent from the property and other income in the fund covers the loan payments. Sam and Dianne have added to their property portfolio without having to use equity in their existing portfolio or contribute any cash from outside the super.

 

Key Points:

  • Obtain independent financial advice from a licenced financial planner
  • Ensure you understand the SMSF structure, benefits, risks and costs
  • Speak to your accountant regarding GST costs
  • Ensure sufficient cash funds are retained in your SMSF