Buying investment properties through a self-managed super fund (SMSF) is becoming increasingly popular in Australia. People love ‘bricks and mortar’ assets to increase wealth, so here are some of the benefits of using your SMSF to increase your wealth and provide you with a great lifestyle when you retire.
Lower tax rates
Purchasing an investment property through your SMSF gives you great tax incentives. Rental income is taxed at 15% and you only pay 10% on capital gains if the property is held for over a year. Both of these become 0% if you’ve retired and are receiving a pension from the fund.
That means that if you decide to keep the investment once you have retired and your SMSF owns the property outright, the rent is not taxed. That means you get to keep 100% of it! You can even invest this income into another investment property, further growing your wealth.
When personal income tax rates can be up to 46.5%, an SMSF property is an attractive proposition. Even if a company you own has an investment property, tax on it is 30%.
Your business can rent premises from your fund
Generally speaking, you can’t buy an investment property and live in it, or rent it out to family or friends. This is because the investment must be for the sole purpose of providing for your retirement. However, if you run a business, you can purchase a commercial property with your SMSF and lease it out to your business. Why pay a landlord when you can pay for the retirement you want?
Your business pays a rental amount, calculated at market rate, into your SMSF, which is tax deductible against your business income. Importantly, this rent is not classified as a superannuation contribution, so you can still make concessional and non-concessional contributions, subject to your age and any contribution caps.
Buy your retirement home now
Residential property investments are a bit trickier, because you, your family or your friends can’t live in the property. However, if you plan on retiring somewhere else, you can buy a home, rent it out and once you retire and receive a pension from your fund, transfer the property from your fund to your personal name.
This could be a great option for those wanting to take advantage of lower property prices to buy that dream house on the coast whilst generating income for your retirement.
You may be considering taking advantage of the substantial tax incentives on offer. With the right planning for your circumstances, you can maximise your wealth. If you want to learn more about SMSFs, download an today.