Some of the possible benefits of an SMSF Borrowing Strategy include:
Supercharging your Super
Gearing using the equity in your existing superannuation assets provides an opportunity for exponential returns, as it will magnify both the upswings (and downswings) of an investment in dollar terms.
Utilisation of Existing Superannuation to Purchase Property
Whilst not strictly limited to property investment, SMSF borrowing rules have enabled many investors who did not have sufficient capital outside superannuation, to purchase a property.
In addition, it allows them to utilise their concessional contributions to make loan repayments and retire the debt quicker than simply using the net rents derived from the property.
Tax Benefits Now
In accumulation phase, a complying SMSF enjoys concessional income tax rates of 15% on its earnings, whereas investment earnings held outside superannuation can be taxed at as high a rate as 49.0%.
This arbitrage can have significant wealth creation benefits, in particular for business owners who occupy their commercial premises owned by their SMSF. Every $1 of rent paid can save them potentially up to 31.5c in overall net income tax!
Tax Benefits in Retirement
With proper structuring and planning, a SMSF in pension phase is now an effective income tax haven. Investment earnings and Capital Gains are currently tax free to the SMSF!
In addition, when you retire superannuation assets can also be paid out to them tax free, in the form of a pension or a lump sum.
Unlocking Equity in Existing Commercial Property Held Outside Superannuation
One of the most powerful strategies being utilised in the market involves the transfer of a commercial property to an SMSF and the refinance of existing borrowings into a complying SMSF loan.
The strategy provides cash to the existing property owner to retire the original debt, and any surplus can be structured to retire some or all non-tax deductible debt, such as a home loan or credit card debt.
It can also provide access to future tax free income and capital gains on the property.
While the strategy has up front transaction costs in the form of Stamp Duty and potentially CGT (in many cases this can be minimised or eliminated with the use of the Small Business CGT Concessions), undertaking a feasibility analysis to model the long term tax benefits and enhanced debt amortisation that it creates, in many cases can outweigh the initial cost by tens, even hundreds of thousands of dollars.
Want to know more about SMSF Borrowing, contact an Specialist SMSF Solutions adviser today on 02 4942 0280.