There are a number of benefits that can come from taking out self managed super fund (SMSF) loans, as opposed to owning it under your own name.
Concessional tax for rental income
For example, if you hold an investment residential property under your own name, the tax you pay is based on your personal income and factored from your regular tax payments. Therefore, this can often be as high as 30 to 40 per cent. Even if you hold investment property through a company, the tax rate will be 30 per cent.
However, rent received through investments purchased with a SMSF loan is taxed at a maximum rate of 15 per cent. Furthermore, there are often tax deductions due to the expenses involved with running and maintaining the property. Things like land rates and property maintenance will be tax deductible – potentially reducing the amount of tax to be paid even more.
This also spreads to capital gains. If you sell the property after 12 months, you will find yourself charged up to 10 per cent on any growth experienced. However, if you hold it for over a year – after it transfers into the pension stage – any capital gains earned will be exempt from taxation.
Accelerated retirement fund saving
If you take out SMSF loans and purchase a property that you then run a business out of, the rules surrounding this mean your business pays a commercial rental rate to your super fund. This rent is deductible from your business but isn’t treated as a superannuation contribution.
Therefore, you’ll be able to increase the speed that your superannuation fund grows, allowing you to further prepare for the future.