The popularity of Self-Managed Super Funds (SMSFs) has grown dramatically in recent years. As a matter of fact, between 2004 and 2011, the number of SMSFs in Australia grew by over 63%.
Borrowing rules for SMSFs now enable you to borrow to invest in direct property – which can be a powerful way to increase your retirement funds. There are many reasons to invest in property within your SMFS, but there are three top superannuation benefits benefits that really make property a great investment choice:
Top 3 Benefits of SMSF Property Investment
Utilising your SMSF to own residential investment property (instead of holding the property personally) can be a much more effective way to reap tax benefits. These benefits come as a result of two primary variables: favourable tax treatment for rental income and the inherent way that capital gains are recognised and taxed within an SMSF. The highest tax rate you will pay on rental income within your SMFS is 15%. This rate can drop as low as 0% when your SMSF is in the pension phase.
According to the Australian Tax Office, SMSFs have outperformed large funds three out of the past four years. The returns for residential property are typically around 10.3% pa, made up of approximately 6.8% capital growth and 3.5% net income. Compared to a large superannuation fund’s returns (which often lose money), SMSF property investment can be a much more effective way to increase your retirement funds.
Increased Borrowing Capacity
Another substantial benefit of borrowing within your SMSF is that your borrowing capacity is potentially increased. This is due to the fact that the servicing of the loan can be funded from rental income and other earnings of your SMSF as well as from other forms of super contributions. These include employer contributions (9% super guarantee as well as salary sacrifice), personal contributions (tax deductions claimed by self-employed) and government super co-contribution (as much as $1,000p.a.). Gearing, using a SMSF, may be the only solution for investment property ownership for many people.
So if you are looking for a way to grow your retirement savings and maximise available tax benefits, purchasing investment property within your SMSF is definitely worthy of serious consideration.
Of course you still have to be smart with your property selections and you have to make sure that you are in compliance with all related laws and rules. That’s why it is so important to seek out the right professionals to help you. With the right team on your side you can ensure that you are within compliance of all rules and laws and that you have developed the most effective strategy for your unique situation. After all, it’s your retirement savings that is on the line here, so it only makes sense to take the right steps now to ensure that you maximise your returns in the future so that you can enjoy a high quality of life in your golden years.