smsf borrowing before the ban

@business_DEPOT businessdepot businessdepot.com.au

Head of Tax & Super

- Building & Construction - Property- Small to medium business

m.garrone@businessdepot.com.au(07) 3193 30020404 869 255

@mgarrone

• What likely to happen to existing arrangements

• What is involved if you are borrowing

• What are the steps from contract to settlement

• What do you need to consider at settlement & in the future

• Our practical experience

• SMSF here to stay

• Growing, healthy, vibrant area

• Competition – SMSF & Super market

• Professionalism growing

• Innovation – cloud, advice, offerings

• Structural risk – GFC 2008 & future shocks

• Super 2nd largest asset [behind home]

• Benefits individuals / economy as a whole [stabiliser – avoid age pension]

• Limited recourse in name only – eg, PG’s, risk to other assets

• Lack of diversification [risks increased]

• BUT noted borrowing still relatively small [future risk]

• RBA/APRA want leverage limited [risks incompatible with objective of savings

vehicle for retirement]

• Old problems back

• Property industry growth profile – RBA heavy lifting

• Difficult economic environment

• Ban likely

• Limited recourse in name only

• LVR rules

• No related party loans

• SMSF Corporate trustee required

• Diversification / liquidity rules

• Ban PG’s

• 31 March 2015 FSI submissions close

• April to May budget night

• Complicated by

(i) Lack of political capital

(ii) Tax white paper

• Terminate existing arrangements [unlikely]

• Grandfathering – likely

(i) Pre 99 unit trusts – 10years and ongoing [possible to have in place - just less

flexible]

(ii) July 2010 borrowing changes

- Timing restriction – difficult as long term 10-30 years

- Maintain borrowings – what does that mean – refinance?

- Loan refinance?

- Backdating of legislation [unlikely]

• ensure settled by 31 March 2015 [Safest]

• Under contract but not settled [Caution]

(i) Conditional subject to finance

(ii) Unconditional [risky]

(iii) Careful [if long settlement or off the plan]

(iv) July 2010 changes – when loan contract signed

Consider:

• Age

• Liquidity

• Diversification

• Overall situation

Wait until suitable property found?

• Set-up in advance?

• Timing on rollover?

• Insurance required?

• Ensure deed allows borrowing

• SMSF Corporate trustee in place – change assets over, eg, shares, property, bank accounts

• Borrowing – Bank indication of lending limits

• Balance – SMSF

(i) Own cash

(ii) Contributions

(iii) Existing assets liquidated

• Make sure you can execute on plans

• Find suitable property

• Review property with advisors

(i) likely cash outflows – eg, repairs, improvements

(ii) single acquirable asset?

(iii) understand likely property plans/options in the future

• Directors?

• Shareholders?

• Name on contract

“Company Pty Ltd as trustee for Borrowing Trust”

• Insurance on property – name?

• Form day before going to contract?

• Stamp duty issues if SMSF doesn’t pay deposit

• Can you get your own deposit back?

• What if you cannot get you deposit back?

• 45 days to settlement [subject to finance]

• 60 days if no SMSF set-up [abn, rollovers, insurance]

• Don’t forget potential ban / legislation changes

• Why not 30 days?

• Liquidity

• Diversification

• Risk/Return

• Existing strategy – full update?

• SMSF Deed

• Borrowing Trust

• Property

• Lending – eg, capacity to repay and lvr’s

• GST registration, if required [easily forgotten]

• Do earlier or only just before settlement?

• Limited recourse loan to SMSF

• Cash from SMSF

• Contributions (what if settlement doesn’t go through?)

[easy to see mistakes on settlement – cash instructions required if more complicated – care

required with timing]

SMSF Specialist- SMSF advice- Real estate guru- SMSF Association specialist

m.kelly@businessdepot.com.au(07) 3193 3020

@megankelly @megankelly

SMSF

Rent Expenses

TRUST

Tenant

Lease

Limited recourse

Loan Repayments

LENDER

• Lease with instalment trust – assigned or new lease

• Use ABN/TFN of SMSF

• Rent deposited to SMSF [use SMSF bank account]

• SMSF pays expenses

• BAS – if GST applicable [quarterly]

• Financial Statements [SMSF only]

• Audit [slightly higher costs]

• Transfer to SMSF [leave some debt in place?]

• No CGT?

• No GST?

• No stamp duty? [who paid deposit & more]

• Cloud – Class Super & Apps

(i) costs

(ii) benefits – reporting & interaction [online access – you & your advisor]

• Borrowing ban / changes

• Murray FSI – lot more then Super

(i) Tax free pensions & withdrawals > 60?

(ii) Franking credit changes?

(iii) SMSF Corporate trustee mandated?

• Self managed Super

• Property

• Structuring

• Strategic Advice

• Retirement planning

• Estate Planning

@business_DEPOT

businessdepot

businessdepot.com.au

m.kelly@businessdepot.com.au

(07) 3193 3020

k.thompson@businessdepot.com.au

(07) 3193 3052

a.neuendorff@businessdepot.com.au

(07) 3193 3021

@business_DEPOT

businessdepot

businessdepot.com.au

m.garrone@businessdepot.com.au

(07) 3193 3002

m.kelly@businessdepot.com.au

(07) 3193 3020