Uncertain super policy rattles SMSF investors

Uncertain super policy rattles SMSF investors

Posted on Thursday, January 05 2012 at 10:05 AM

Earlier this week The Australian newspaper reported that unions and welfare groups are placing pressure on the Gillard Government to slash contribution incentives for middle and higher income earners. API investigates what this might mean for property investors in an era of uncertain superannuation policy.

In a follow-up article on Wednesday The Australian reported that the Labor Government had already halved the concessional contribution ceiling to superannuation from $50,000 to $25,000 per year for those aged under 50; for those aged over 50 the same ceiling was halved from $100,000 to $50,000.

“From July 1 the cap for people over 50 is set to halve again to $25,000 a year, although the government has promised to introduce legislation to retain the $50,000 cap for people with superannuation fund balances of under $500,000,” reported The Australian.

But Prime Minister Gillard has since provided some glimmer of hope that she won’t be caving in to pressure from unions and welfare groups, stating that no further changes would be made to her government’s superannuation policy.

This guarantee from the Prime Minister follows recent announcements that the compulsory employer superannuation levy would be elevated from nine per cent to 12 per cent; partially funded by the mining tax, and that the under $37,000 income earners would be exempt from paying the 15 per cent tax rate on superannuation contributions, reported The Australian.

Buyers advocate Peter Rogozik of Peter Rogozik Property Consulting said the declining superannuation contribution ceiling and uncertainty over possible further policy changes is certainly making the potential to buy property through a SMSF more challenging and is likely to throw a shadow of doubt over choices in doing so.

He said the self-managed superannuation rules and superannuation contribution policy are “very complex and changing all the time” so individuals need to be careful about what they’re doing and attain independent expert advice before buying a property under a self-managed superannuation fund (SMSF).

While there are “tax haven” incentives to contributing to a SMSF, the number one problem with buying property through SMSF funds instead of buying property direct in the investor’s personal or company name is that equity can’t be leveraged, said Rogozik. “So when the property doubles in value every seven to 10 years as it does with a well chosen property, the equity gained can’t be used to continue building the property portfolio.”

The second problem with buying a property under a SMSF is if individuals decide to change the structure afterwards to take advantage of the equity gain and leverage it to buy another property, said Rogozik.

“If you want to change the name on the property title to an individual name there are substantial costs involved in stamp duty and capital gains tax – the ramifications of putting the wrong name on the contract and title can be horrendous; costing hundreds of thousands of dollars.”

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