Terry & Shelley established a SMSF in June 1995. As at 30 June 2015 they had a super fund valued at $2,187,338.
‘Joe helped me establish the fund along way back now and has taken care of the administration and annual compliance issues over all those years. Its been a tax effective solution for my family and now I have a retirement nest egg that I probably would not have had unless Joe had suggested the strategy.
-Terry, age 64, Gold Coast
Here’s how they did it:
Terry and Shelley are both 50 years of age. Combined Super Balance is $250,000. Terry’s income before tax is $180,000. Shelley’s income before tax is $80,000. Terry and Shelley decide to buy a property worth $500,000. Property grows at 5% p.a and is sold in 20 years.
- Leveraged property (purchase outside of super in Terry’s name only)
- SMSF gearing (purchase inside of super in Terry & Shelley’s SMSF)
Before Retirement in Terry’s Name
Capital Gains Tax Liability – Terry’s Name
- Property cost base = $520,000 ($500,000 plus transactions costs)
- Less $50,000 depreciation (ATO allows tax deduction, but adds this amount back on sale)
- New cost base = $470,000
- Property sold 20 years later for $1.3m, less new cost base of $470,000 = $830,000 gain for tax purposes
- ATO allows 50% 12 month CGT exemption
- Accessible Income = $415,000 CGT
- Terry pays $173,297 in tax
After Retirement in Terry’s SMSF
Capital Gains Tax Liability – Terry’s SMSF
Tax payable on sale = Nil
- Current superannuation laws allow us to commence pension
- At the point of pension commencement; all underlying assets supporting that income stream are tax free. Thus, you can quarantine the rate of CGT to Nil over the life of the asset.
Land Tax (thresholds as at 30 June 2017)
Terry already owns investment properties outside of super in QLD with land value of $432,000. Terry and Shelley are considering buying another investment property with a land value of $360,000.
If Terry buys property outside of super:
Land Value $350,000
Land Tax Payable $ 2,320
($432,000 + $350,000 – $600,000 = $182,000)
If Terry buys property inside of super:
Land Value $350,000
Land Tax Payable NIL
Total Saving over 20 years $46,400