How SMSF Reforms Will Affect Property Investors
Investing in property via an SMSF remains an attractive proposition for many Australians. Not only does it allow more people to buy investment properties to help improve their financial futures, it also provides significant tax advantages.
In November 2016, legislation was passed that set out to reform Australia’s superannuation sector. According to Treasury these reforms, which came into effect on July 1, set out a clear objective for superannuation “to provide income in retirement to substitute or supplement the age pension”.
Some of the measures reduce previous concessions for super account holders with high balances, while others are designed to assist low-income earners, the partially self-employed and retirees. However, while the full impact of these reforms may still not be widely understood, it is causing the some concern among SMSF account holders with property investments.
What it means for SMSF property investors
Investing in property via an SMSF remains an attractive proposition for many Australians. Not only does it allow more people to buy investment properties to help improve their financial futures, it also still provides significant tax advantages particularly around the payment of capital gains tax (CGT), especially once the SMSF account holders have reached pension stage.
This is true even with the proposed changes, which include caps for transfer balances and pre and post-tax contributions changes.
Despite the reforms, the demand for property from SMSFs continues to be strong, with research showing as many as two in five SMSFs hold residential or commercial property. In fact, those SMSFs with residential property have increased from 19 per cent to 22 per cent over the past year, while direct commercial has risen from 18 per cent to 20 per cent, according to research by the Financial Services Council and UBS Asset Management.
It’s important to understand the changes, and how they will affect your personal circumstances, so please seek advice from a professional. That said, under the new legislation there is no limit to how much money people can have in their super accounts, but the excess above $1.6 million per SMSF member needs to stay in the accumulation phase, which does attract a 15 per cent tax rate.
According to some corners of the market, a raft of commercial properties are coming up for sale as a result of panicked SMSF investors fearing the new super rules will increase potential liabilities.
But they don’t have to sell: assets exceeding the $1.6 million individual ceiling will need to be spread across two holding accounts – the pension account and accumulation account. The accounts are often routine in an SMSF, when there are various members and some are already retired and drawing a pension.
It’s important SMSF investors considering selling their properties also take into account the transaction costs and time involved in doing so – and it is my belief that the numbers are unlikely to add up to a win.
With all property investment, inside and outside of an SMSF, one of the keys to success is time in the market so that the power of compounding can work its magic. Therefore, SMSF investors should stay calm and look to the long term, rather than react to the relatively short-term impact of these changes.
DISCLAIMER: The information contained in this article is provided for general information purposes only. The information should not be used or relied on as a substitute for legal advice. If you require legal advice concerning a specific fact or situation, you should seek independent legal advice. MetroCity Realty accepts no liability or responsibility for any loss occurring as a result of anyone acting or refraining from acting on the basis of the information contained herein. Whilst MetroCity Realty has taken all reasonable measures to ensure that the information contained in this fact sheet is correct, MetroCity Realty gives no warranty and accepts no responsibility for the accuracy or the completeness of the information