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A Sydney Financial Advisor discusses SMSF and Property

4521555848 A Sydney Financial Advisor discusses SMSF and Property  We thought that we would get some awareness from a leading Sydney Financial Advisor, as to what the types of investments, one should consider in today’s volatile economic times. He is Alex Dimos and he is a senior partner at Econ Financial Services, which is located across pyrmont bridge at the Galeries Victoria, in town.  He was interviewed by Jessica, a Relationship Manager at EFS.

1. Alex, as one of our senior advisers, what investment trends have emerged particularly in the superannuation environment?

Since the commencement of the Global Financial Crisis we have seen a significant move towards high yielding cash and direct property.

2. Would you say that equities have become less popular since the Global Financial Crisis?

Marginally, however our experience centres on a client database which is dominated by retirees. We have found that whilst many clients have become wary of international equities, there is still significant interest in the Australian share market. To date, the large banks and resource companies which dominate the Australian Stock Exchange continue to produce strong earnings and franked dividends, which are attractive to retirees in a tax free environment.

3. There has been a rise in individuals wanting to setup a DIY Super or SMSF, why do you think people are moving this way?

In my opinion DIY Super was always a popular alternative when it came to managing one’s retirement needs, on the basis that it offers effective control and maximises investment flexibility. The trend that emerged since the Global Financial Crisis shows that individuals are concerned with where their superannuation monies are invested and who is managing it. Other benefits include maximising tax efficiency through the placement of life insurance within the fund and more options in regard to estate planning.

4. There has been much recent publicity about borrowing to purchase property in super. Have SMSF always been able to purchase property?

Yes, purchasing property through super has always been available. A SMSF can purchase property outright if it has sufficient funds available or it may purchase a property in conjunction with a member in a partnership arrangement.

5. Could you please elaborate on how someone could purchase property in conjunction with a member in a SMSF?

This strategy would involve the SMSF purchasing a property as a tenant in common with members of the fund. If the members do not have sufficient cash for the portion of the property, they can take out a loan. Since the property cannot be used as security of the loan, the members will have to use other assets as security. Many people will choose to use their principal residence as security for the loan.

6. Why would you purchase as tenants in common?

If a property is purchased jointly by a SMSF and its members, the property must be owned as tenants in common. This means that if the members die, their share won’t be inherited by the fund, instead their estate will inherit their share. A SMSF cannot own an asset as a joint tenant. SMSFs that own assets as joint tenants are in breach of the SIS Act.

7. What are the taxation implications of the above strategy?

Generally speaking, the rental income of the portion owned by the SMSF will be taxed at 15%. Some expenses will be deductible including repairs, depreciation and the building allowance if applicable. If the property is held for at least 12 months, any capital gains will be taxed at 10% if the property is sold.

The rental income of the portion not owned by the SMSF will be taxed at the marginal rate of tax. The owner will also be able to claim the usual expenses as deductions, and importantly, will also be able to claim the interest on the loan as an expense. If the property is held for at least 12 months, any capital gains will be taxed at half of the owner’s marginal rate of tax.

8. So what are the risks?

Aside from not meeting the SIS Act Regulations as they pertain to the sole purpose test, in house asset rules, suitable investment strategy etc., the normal risks associated to borrowing apply, such as the potential for default, which would put their security property at risk.

9. Can Econ Financial Services assist with all aspects of the above strategy?

Econ Financial Services has a range of suitably qualified professionals that can advise on the setup of the SMSF through to advice in securing funding for any potential purchase.

Should you have any questions relating to any matters discussed in the interview, please feel very free to give Alex a call personally on | Direct line:  +61 2 9266 2250 | Personal Mobile:  0413 730 056

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