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Master Class:Discover How To Use Your Super To Invest In Property

With Dean Rosario from Anne Street

Partners

We help investors build and manage

their property portfolios

In partnership with…

Real Estate Investar’s tools

Master class webinars• Designed to share knowledge.

• Desire to provide extra value to our clients.

• Great for both new and experienced investors.

• Plenty of opportunity for Q&A.

• We will run these regularly throughout the year, and sometimes involve our partners to provide additional insight.

Todays 9 topics1. Demonstrating the enhanced

investment flexibility SMSF can provide.

2. Explanation of the many advantages of SMSF property investing.

3. How to take control of your investment mix inside of SMSF.

4. How SMSF gives you increased estate planning benefits.

Todays 9 topics5. Explanation of the many tax

advantages that can be gained with a SMSF, both before and after retirement.

6. Why pooling your resources with family members can help you reduce SMSF costs.

7. Limited recourse borrowing arrangements (LRBA).

8. A realistic case study.

9. Why investing in property can be a great strategy for your SMSF and retirement planning.

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Audience poll

Which property investment category are you in?

Anne Street Partners Pty Ltd. ABN 25 107 671 56310

Material contained in this presentation is an overview only and it should not be considered as a comprehensive statement on any matter nor relied upon as such.

This presentation contains general information only and does not take into account your personal objectives, financial situation or needs and you should consider whether the information is appropriate to you before acting on it. Both superannuation and tax laws are complex and subject to change. Before acting on any information you should consider seeking advice from a financial adviser and your accountant before making any financial decision in relation to any matters discussed in this presentation.


Introducing Dean Rosario

Meet your presenter

• Dean has over seven years of hands-on experience in the SMSF sector, particularly within the area of limited recourse borrowing arrangements.

• Dean is a Justice of the Peace, holds a Bachelor of Banking & Finance Degree and a Diploma of Financial Services.

• He is also a member of the SMSF Association of Australia.

• A SMSF Trustee himself, Dean enjoys providing assistance and direction to other SMSF trustees.


Anne Street Partners

• Established 1997

• Privately owned – non bank aligned

• Broad range of financial solutions

• Nationwide footprint

• Experienced SMSF administrators since 2008 – 700 funds under administration

One of Australia’s leading wealth management organisations


What is a Self-Managed Super Fund?

• Self-Managed Superannuation Funds (SMSFs) are financial vehicles for retirement savings.

• The difference between a SMSF and other types of funds is that the members of a SMSF are usually also the trustees.

This means the members of the SMSF run it for their own benefit and are responsible for complying with super and tax legislation.


What is a Self-Managed Super Fund?

• A super fund with up to 4 members

• All members are trustees or directors of corporate trustee

• All trustees are members

• Regulated by the ATO

• No member of the fund is an employee of another member (unless related)

• Trustee are not able to be remunerated for their duties as trustees


Did you know?

• There are over 525,000 SMSFs in Australia containing approximately 30% of the $2.05 trillion held within superannuation.

• Over 1 million Australians have a SMSF and embraced the vehicle as a useful tool to save for their retirement

• In 1998 only 12% of Australia’s superannuation wealth was contained within SMSFs compared to more than 30% today.


Audience poll

What are your SMSF plans?


Why choose Self – Managed Super?

• Asset types

• Personal investment strategy

• Pooling of super funds – family/friends

• Limited recourse borrowing arrangements (LRBA)

• Tax planning

• Estate planning

• Acquisition of business premises

• Running cost / economy of scale

In a word - CONTROL


Important considerations

• Roles & responsibilities of trustee

• Existing insurance cover

• Allocation of time

• Outsourcing of services

• Minimum superannuation balance

• No access to Superannuation Complaints Tribunal

• Living permanently overseas


Trustee responsibilities

• SMSF trustees have ultimate responsibility for the operation, management and compliance of the fund

• The primary obligation is to ensure the fund is maintained only for the purposes of providing retirement benefits to its members

• This is the Sole Purpose test


Role of a trustee

• Act honestly in all matters concerning the fund

• Exercise skill, care and diligence in managing the fund

• Act in the best interest of the members

• Ensure members only access benefits once condition of release is met

Trustees are required by law to:


Role of a trustee

• Ensure members’ personal monies are kept separate from the funds

• Take appropriate action to protect the fund’s assets

• Comply with all regulations under the Superannuation Industry Supervision (SIS) Act

• Prepare, implement and regularly review a fund investment strategy

Trustees are required by law to:


Role of an Administrator

• Acts as the tax agent for the fund and assists with the annual compliance requirements

• Prepares annual tax return and financial statements

• Lodges annual tax return with ATO

• Different levels of service offerings available

• Works with the Auditor to arrange the completion of the annual audit


Role of an Auditor

• It is a formal requirement that each SMSF is audited by an approved auditor, registered with ASIC, on an annual basis

• Provide an independent audit of the fund’s accounts along with a SIS compliance audit

• The auditor will notify the trustees of any concerns raised during the audit. Depending on the severity the auditor may be required to raise an audit contravention report with the regulator, the ATO, for further action


Role of an Adviser

• As a SMSF is a complex structure it is imperative that the trustees form a close relationship with a Financial Adviser for ongoing education, guidance and advice

• For funds entering LRBAs many lenders require the fund to obtain independent financial advice

• Strategic planning for structure and diversification

• Risk guidance


Tax considerations

• Generally, the superannuation environment is subject to a concessional tax rate of 15%

– Negatively geared investments– Fully franked dividends – Discounted capital gains tax– TTR strategies

• An SMSF trustee has control over the timing of asset disposals and acquisitions which allows the trustee to maximise the tax position of the fund


Estate planning

• Ordinarily a super death benefit does not form part of your estate

• Legislation only permits Super death benefits to be paid to:

– Estate– Spouse– Child – Any other person in interdependency

relationship


Estate planning

• Super dependent vs Tax dependent

• Check the trust deed

• Review estate plan regularly

• Inter-generational wealth transfer strategies can be adopted using a SMSF


Timeframes in establishing a SMSF


SMSF Costs


Audience poll

What are the total fees you are paying your super funds each year?


What are the costs?

• Fund establishment with corporate trustee

• Security / borrowing trust with corporate trustee

• Annual administration (depending on complexity)

• Annual audit

• Annual ASIC fees (from 1st July 2015)

• Annual ATO Supervisory levy (existing fund)

$1,000 – 2,000

$1,000 – 5,000

$500

$46 - 246

$259

$2,000 – 4,000

Fee $


Winding up a SMSF

• Non compliance

• Separation of trustees

• Death of member(s)

• Insufficient balance

• Overseas retirement


Does a SMSF suit everyone?


Is a SMSF for everyone?

• Competence

• Commitment

• Compliance


Tips and traps

• Get advice

• Most common mistakes relate to separation of personal assets

• Working overseas (SMSF residency)

• Keeping records

• Pensions

• Death benefit nominations

• Beware of scams!


Limited recourse borrowing arrangements


Amendment to SIS Act

• Superannuation Industry Supervision (SIS) Act amended in September 2007 (section 67A)

• Section 67A contains an exception for certain limited recourse borrowing arrangements (LRBAs):

– Borrowing is for acquisition of single acquirable asset

– Acquirable asset is held on trust with trustee acquiring beneficial interest

– Trustee has a right to acquire legal ownership after one or more payments

– Upon default, lender’s rights are limited to rights relating to the acquirable asset (personal guarantees)


Audience poll

How much super do you need for a comfortable retirement?


A case study example


Meet Tony & Karen

– Tony is 44, works full time on $155,000 p.a. – Karen is 42, works part time on $45,000 p.a. – They have two dependent children aged 16

and 13. – They have a combined Super balance of

$205,000 across 5 Super funds.

They wish to invest in property however due to both children being dependent they spend all of their income on lifestyle commitments.They are looking for an alternative way to invest in property which does not impact their current lifestyle.


Tony & Karen’s strategy

– Establish a SMSF – Combine their existing super

balances in the SMSF– Purchase a $460,000

apartment in Chermside, Brisbane

– Obtain lending via a LRBA to complete the purchase


LRBA Structure


The numbers

Tony & Karen’s SMSF property purchasePurchase price $460,000

Stamp duty $14,525

Other purchase costs $5,000

Total Investment $479,525

Loan detailsPrincipal & interest

Term 30 years

LVR 70%

Rental income (4.7% yield) $21,620

Interest rate 5% p.a

Monthly repayments $1,703

$322,000 from lender and $157,525 from SMSF


Property cash flow (simple)

Income

Gross rental income $21,620

Expenses

P&I Loan repayments $20,440

(Interest only portion $15,552)

Agent fees (8%) $1,730

Rates & Water $1,200

Body Corporate $3,000

Insurance/Other $1,000

Net property cash flow -$5,750(Net property cash flow -$862 if interest only loan)


Tax Position of FundIncomePersonal concessional contributions $19,000

Interest $997

Gross Rental Income $21,620

Gross Income $41,617Less ExpensesInterest $15,552

Agents Fees $1,730

Rates / Water / Body Corporate $4,200

Administration / Audit / ATO / ASIC $3,051

Insurance (Personal & Property) $3,000

Borrowing Costs (Amortisation) $440

Depreciation - chattels $1,997

Depreciation - building Write Off $6,416

Total Expenses $36,386Net Income $5,231

Tax Payable at 15% $785


SMSF cash flow (simple)

Income

Contributions $19,000

Interest income $997

Expenses

Net property cash flow ($5,750)

Personal Insurance ($2,000)

Administration & Audit ($2,500)

ASIC & ATO ($551)

Income Tax ($785)

Net SMSF cash flow $8,411* (Net SMSF cash flow $13,299* if interest only loan)

*before depreciation


Surplus cash applied to loan(Single property) – Freehold by year 17

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Loan Balance

Years

$267.8k

$45.5k

$178.3k


Projected property value(Single property)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 200

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Years

Assumes 5.5% growth

$601k

$1.34m

$1.02m

$787k


Projected SMSF value(Single property + cash)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 200

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

YearsAssumes surplus cash applied to loan

$380.8k

$1.58m

$1.03m

$654.9k


Go further – buy 3 properties

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$2,329,980Property 2 $750,000

Property 3$1,000,000

$3,862,101

$1,579,596

Net SMSF Value Property Value Loan Value

20 year result

Property 1 $460,000


Go further – buy 3 properties

• Value of 3 properties at year 20 $3.86m

• Loan balance on properties $1.58m

• Property equity $2.21m

• Less – equity in SMSF at start $205k

– 20 year contributions (with 3% CPI) $510k

• Equity growth through property (net of purchase costs) $1.49m

• Average annual capital growth over 20 years $74.7k

• Annual fund surplus cashflow by year 20 (excluding personal contributions) $50k p.a.


Audience poll

What is your current combined super balance?


Benefits of strategy

• Ability to invest in direct property

• No financial impact on lifestyle

• Increase exposure to growth assets

• Control over investment choice

• Tax benefits to fund


Introducing Anne Street Partners Super Solutions


The Anne Street Partners Super Team

• Brisbane based team with over 40 years collective SMSF experience

• Established 1st SMSF in 2008

• Developed SMSF trust deed suite in 2013

• Provides setup & administration services to 700+ funds

• Able to respond to ATO audits


Get your 45 min complimentary SMSF phone consultation today

Reserve your opportunity at:

tinyurl.com/ASPSMSF4 submit your details and one of our specialists will

call you.Register today and receive your free

SMSF E-book


SMSF Q&A

Reserve your opportunity at:

tinyurl.com/ASPSMSF4Register today and receive your free

SMSF E-book