Superannuation Minister Chris Bowen. Last week announced some changes to the super gearing rules.
In a recent announcement the Minister gave relief to some investors who intend to purchase property with borrowing within their own SMSF. This announcement will increase protection for trustees and members; and will clear up a potentially nasty potential side-effect of borrowing.
The Minister has announced two major issues
1) The proposed CGT amendments will ensure that the superannuation fund as the owner of the "underlying property" for income tax purposes, as opposed to the trustee of the bare trust, who has to hold the property on behalf of the super fund whilst the super fund borrows money.
This means that the self managed super fund is entitled to any distributions, associated rent, franking credits, capital gains and losses on the underlying asset (including property) and will be able to claim all holding costs.
Further, once the loan is repaid or when the super fund pays the final installment, there will be no CGT payable on transfer of legal ownership of the asset to itself. That means, the cost base for the asset will be the amount paid to acquire the asset originally and not the market value at time of transfer of legal ownership from the trustee of the property custodian trustee to the super fund trustee.
2) The proposal is to declare the provision of "gearing advice" under super legislation will be treated as a "financial product" that can only be provided by financial service licence holders. The Corporations Law will be amended to include gearing to SMSF as a financial product within three months. It is not clear at this stage, if a PDS would have to be provided to the trustee of the SMSF before a trustee can agree to enter into this arrangement.
That means that to get advice about super gearing products, you will have to speak to someone qualified to give financial advice: financial advisers and qualified accountants.
"The amendments will extend the government's consumer protection framework to cover certain superannuation borrowing arrangements such as instalment warrants and thereby help protect the savings of fund members," Bowen said.
The amendment will be designed to restrict real estate agents and property spruikers to promote property investments through self-managed super funds.
Bowen hinted at further changes to come. "The government is also aware of some areas of uncertainly with borrowing arrangements made under the SIS Act and is considering the issues involved."
There are some issues, which are still not resolved such as provision of personal guarantees by trustees, refinancing of SMSF loan by rolling over existing instalment warrant, premium Interest rates charged by banks and borrowing costs etc. We will comment, if these issues are included in the legislation which will change the ITAA to give effect to this announcement.
The tax amendments will apply for assessments for the 2007/08 and later income tax years
Batallion Legal views
Batallion Legal is legal adviser to trustdeed.com.au and has written our SMSF gearing documents, they have advised us that the announced changes will not affect a properly drafted arrangement and said that our current structured super gearing arrangement will comply to the proposed changes to Section 67 (4A) of SISA. As in our arrangement the role of the property custodian trustee (PCT trustee) is only to hold legal title to the underlying asset and to transfer the legal title as and when requested by the trustee of the self managed super fund.
In Battalion Legal's view, the proposed change will provide legislative relief to new and existing trustees to invest their superannuation money in the expected future property growth.
To read the full announcement, please click here.
With share market deciding which direction it wants to take, interest rate rising and halving of the contribution caps, using gearing and purchasing property within Self Managed Super Fund may not be such a bad idea. If there is not enough in your SMSF then you may have to borrow. Section 67(4A) of SIS Act allows the fund to borrow, provided the transaction is an installment warrant.
Leverage can create a unique opputunity in your SMSF, where the loan is repaid by salary sacrifice contributions and it is possible for the fund to pay no tax on contributions etc.
If you want to or help your client's to avail of this powerful investment leveraging tool within their SMSF then you must not miss this 1 ½ hour information packed seminar followed by an informal lunch (or dinner) with banks representatives that will equip you and satisfy your clients SMSF legal & compliance needs.
We present a great opportunity for trustees and their advisors to learn interesting SMSF Strategies that can be structured to maximize their retirement benefits.
Topics
Some of the Strategies which will be covered at the seminar are :-
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Benefits of purchasing property within SMSF with borrowing and legally reduce your tax
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Understanding the exception under the new SMSF borrowing rules & the step-by-step borrowing process
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Explanation of documents required: investment strategy; security trust deed; necessary resolutions to support the process; setting up the custodian trustee company etc
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What are the main stamp duty & capital gain tax issues associated with Instalment warrants?
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Common questions and answers arising in instalment warrant arrangements
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Handling the conveyance of the custodian trust property
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How to audit SMSF with borrowing
Speaker
Manoj Abichandani
SMSF Specialist Advisor SSA
SMSF Specialist Auditor SSAud
Manoj has worked in SMSF industry for the past 21 years as a tax agent, accountant and Auditor. Currently he audits Self managed super funds and consults as SMSF Specialist Advisor to other accountants. He has helped over 2000 trustees to set up their own funds and currently audits more than 400 funds each year for various accounting firms which puts him in the top 54 SMSF Auditors (as per ATO) in Australia
He develops SMSF strategies and advises trustees & practicing accountants on complex SMSF matters. He has helped 216 accountants / trustees of SMSF to borrow up to now and probably the most experienced advisor in this field.
How to Book - online booking
Cost
The fee for the seminar is $55 Incl. GST and is tax deductible.
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SMSF is the largest Sector of the Superannuation Market
The Australian Prudential Regulation Authority (APRA) has released its Quarterly Superannuation Performance publication for the December quarter of 2009. It shows total assets in the December 2009 quarter rose by 3.3%, to a total of $1.23 trillion.
From these overall statistics, the following relate to the SMSF sector:
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The average total balance of an SMSF is $919,200.
- The average SMSF member balance is $460,000.
- The average number of new SMSFs set up per month in the last quarter is 1630.
- During the December 2009 quarter SMSFs grew by a net 9,705 funds, the only sector of the superannuation industry to have a net increase during the quarter.
- As at 31 December 2009 there are 420,023 SMSFs.
- During the December 2009 quarter SMSFs grew by $15.6 billion to a total of $386.1 billion, the largest sector of the superannuation market.
These statistics continue to show that when it comes to saving for retirement utilising superannuation, that SMSFs are the vehicle of choice.
To access the full report and APRA's Media Release, please click here
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