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NEW!! ! 10/10/11 Super investments by Chris Tolhurst, October 8, 2011. THE AGE
The following article appearing in the Sunday Age may be of interest to some people:
Investing super funds in property is not easy but can provide some protection from volatile sharemarkets.
Changes to self-managed super rules make bricks and mortar more appealing.
Not many people do it but investing in property through a do-it-yourself superannuation fund can be a winning move. Studies show the long-term returns from housing and shares are about the same: an average 11.5 per cent a year in the past 80 years. There's another plus, too, when you hold part of your super in bricks and mortar.
The strategy broadens your asset base and offers some protection from the ups and downs of the sharemarket. You need to be cautious, though.
The property lending rules for DIY super schemes are complex and the many pitfalls can easily trip up the trustees of self-managed superannuation funds (SMSFs).
For example, all the money used to acquire a property for an SMSF must come from the fund. If the trustees of DIY super funds pay a deposit out of their own funds, intending to have the fund reimburse them, they end up paying higher stamp duty.
Finding a lender who'll back you isn't easy, either. The managing director of Wakelin Property Advisory, Monique Sasson Wakelin, says SMSF trustees shouldn't try to second-guess what assets lenders will advance money on.
''You have to be more conservative in your selection process with a super fund because of the rulings that go hand-in-hand with super,'' she says.
''We won't buy any property for a client [that is going to be put into a super fund] that is less than 50 square metres in size.
''Some banks won't lend against it because of the more conservative lending structure they apply to super funds.''
The Tax Office's rules for lending to SMSFs stipulate that until the asset is fully paid for, it must be held in a separate security trust. Setting up this trust adds about $2000 to the cost of the transaction.
The loan must be non-recourse. This means that if the borrower defaults, the lender can take possession of the asset used as security but no other assets of the fund.
Because of this, interest rates on SMSF property loans are often higher than standard mortgages.
So what should you buy? Properties that go up in value and produce an income without you having to put in substantial extra funds for improvements are your best option.
Ms Wakelin favours inner-urban houses and units in good streets away from main roads. She says careful selection is vital, because if property in a self-managed fund slips into negative equity the problem is difficult to fix and retirement earnings will be hit hard.
It's been possible to borrow to buy property through an SMSF since 2007. Last month, the government made this area even more attractive by relaxing the rules on upgrading super fund-owned properties.
A word of warning, though. In the pension allocation phase of an SMSF, a minimum amount of the fund must be drawn down. Anyone aged 65 must withdraw 3.75 per cent during the 2011-12 financial year.
If the yields earned by an SMSF-held investment property are low, investors might need to rely on other investments in the SMSF, such as shares and term deposits, to make the minimum drawdown.
Also, don't forget that property is an illiquid asset and that owning assets that can quickly be turned into cash is more important when you're older.
''If you're of baby-boomer age, you have to be sure that what you are investing in is the right thing,'' says chartered accountant Sue Prestney, principal of MGI Melbourne.
''Logic says that if you are at an age where you might be starting to access your benefits, having everything tied up in a property is not what you need.''
NEW!! ! 10/10/11 New flat-rate fringe benefit tax rules for cars to be phased in over four years by Ron Hammerton. 11 May 2011.
A NEW flat-rate system for calculating car fringe benefits tax, which was announced last night in the federal budget, will be phased in over four years to gradually standardise the current statutory kilometre-based formula to a flat 20 per cent in a move that will cost industry an extra $953 million.
Motor industry and fleet association leaders have described the 20 per cent rate as a tax grab, saying the government should have adopted a lower percentage to make the move revenue neutral.
The Federal Chamber of Automotive Industries (FCAI) says the government should either cut the tax rate to reduce the FBT windfall or offset it with some other tax reform, such as abolishing the luxury car tax, to reduce the burden on industry and motorists.
However, the FCAI and the Australasian Fleet Managers Association (AFMA) have both welcomed the flat rate system in principle, saying it is consistent with lowering greenhouse emissions by encouraging drivers to curb their kilometres.
Announcing the revised system, federal treasurer Wayne Swan said it would remove the unintended incentive for people to drive their vehicle further than they need to, in order to obtain a larger tax concession.
“Phasing out the current car fringe benefit treatment is a sensible reform from both a taxation and an environmental perspective,” he said.
While company car drivers who cover up to 15,000km a year will be better off under the new system, those who drive 25,000km or more will be slugged harder than previously, carrying the extra burden of the higher percentage.
The new system will apply to new contracts signed after 7.30pm on May 10 – Budget night – and does not apply to existing contracts.
Fleet drivers will also be able to retain the log-book method of calculating FBT, which some people feared might be given the chop in the budget.
Under the new statutory system – where the rate is multiplied by the cost of the car to determine a person’s car fringe benefit – drivers on new contracts who drive up to 25,000km will be immediately standardised on 20 per cent.
Drivers covering between 25,000km and 40,000km will move up from 11 per cent to 14 per cent immediately, and then to 17 per cent at the start of the new FBT year on April 1, 2012, before reaching 20 per cent on April 1, 2013.
Long-distance drivers covering more than 40,000km will move up from seven per cent to 10 per cent immediately if they start a new contract, before sliding up each year to 13 per cent, 17 per cent and finally 20 per cent on April 1, 2014.
FCAI chief executive Andrew McKellar said his organisation – the peak body for motor vehicle manufacturers and importers – acknowledged that the previous approach to FBT, using a kilometre-based threshold, was out of date and inconsistent with the goal of reducing carbon emissions for motor vehicles.
“Broadly speaking, industry would expect this reform to be implemented on a revenue neutral basis," he said.
"Accordingly, we will be looking to make an assessment about whether the proposed new FBT rate should be lower.
“Industry will be concerned to ensure that those people who legitimately need to use their vehicle for business purposes are not faced with an unnecessary tax hike as a consequence of this measure.
“Just because you live a bit further from the city, or in a country town and need to cover longer distances, doesn’t mean you should pay more tax on the car you drive.
“Industry also remains firmly of the view that the Government should not lose sight of the need to reform other aspects of motor vehicle taxation, including the luxury car tax.
"The luxury car tax is a punitive tax on advanced safety and environmental technologies and should be abolished or substantially re-worked."
AFMA executive director Marja Thompson said that while the previous system needed reform to encourage greener driving, the 20 per cent statutory rate was too high, and as evidenced by the extra $953 million the government was to earn, clearly a tax grab.
Talk to us on how it will affect you and your business!
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