Investing In Property With Superannuation May 2010

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Some property investment options for superannaution fund investors.

Some property investment options for superannaution fund investors.

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  • 1. Investing in property with superannuation
    Andrew Hayes
  • 2. This document has been prepared by Wealth Engine Pty Ltd ABN 38 142 579 an Authorised Representative of WealthSure Pty Ltd AFSL 238030 and is intended to be a general advice only.
    The document is not intended to be comprehensive and should not be relied upon as such. In preparing this document, we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this document to particular circumstances.
    Wealth Engine Pty Ltd, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained in this document.
    General Advice Only
  • 3. Superannuation is an investment structure designed to provide money for your retirement. (Sole purpose test)
    Superannuation is not an investment itself.
    It is a special type of trust, that the government has given concessional tax treatment to, in order for Australians to provide for their own retirement rather than rely on the age pension.
    Has a full set of legislation governing what it can and can’t do. Superannuation Industry Superannuation Act (1993)
    Understanding superannuation
  • 4. Industry Super Funds.
    Traditionally run by unions along industry lines eg CBUS for construction and building, HOSTplus for Hospitality, HESTA for Healthcare workers.
    Low cost
    Not for profit
    No advice or advisor attached
    Accumulation based, some pensions offered
    Market based choice of investment.
    Types of superannuation funds
  • 5. Public Sector Super
    Government owned and funded, either state or federal eg NSW State Government SSS, Commonwealth CSS
    Not for profit
    Low cost
    No advice or adviser attached
    Either accumulation based or defined benefit
    Can have pension accounts
    Only accumulation schemes have market based choice of investments.
    Types of superannuation funds
  • 6. Corporate Super Funds
    Employer chosen and sponsored.
    Usually master fund/trust based though still some significant company run funds eg Telstra.
    For profit. Eg MLC, Colonial, ING, BT
    Have adviser attached
    Still relatively low cost.
    Accumulation based
    Market based choice of investment
    Types of superannuation funds
  • 7. Personal Super Funds
    Chosen by you.
    Master fund/trust based eg BT Super Wrap, Macquarie, MLC Masterkey, AMP Flexible Lifetime
    For profit
    Advisor attached
    Higher cost
    Accumulation based with option to roll to a pension.
    Wide and deep market based investment choice.
    Types of superannuation funds
  • 8. Self Managed Super Funds (SMSF)
    Set up and run by the members (up to 5).
    Directly regulated by ATO.
    Can use any type of investment platform.
    Not for profit
    Advisor attachment optional
    Highest cost
    Accumulation and pension accounts available
    Widest and most flexible investment choice.
    Types of superannuation funds
  • 9. Superannuation funds, including self-managed super funds (SMSF), have always been able to invest in property.
    Only defined benefits funds do not give you a choice of market based investments.
    Investing in property using super
  • 10. Long term asset class returns 20 years to December 2007.
  • 11. Listed Property Securities.
    Unlisted property trusts and syndicates.
    Managed Property Funds.
    Business Real Property.
    Residential Investment Property.
    Property Warrants.
    Types of property investments available
  • 12. Listed property securities are managed investment schemes and companies that are traded on the ASX and can include.
    Real Estate Investment Trusts (A-REITS) eg Commonwealth Office Fund (CPA), ING Industrial Fund (IIF).
    Property Development/Management companies.eg Mirvac Group (MGR) Stockland (SGP).
    Stapled securities which usually contain a share in the management company and a unit in the property trust. Eg Westfield Group (WDC)
    Listed Property Securities
  • 13. Are managed investments which are not listed on the ASX.
    Are very diverse everything from caravan parks (Aspen Village Fund) to single/small building offers (Invetsa Fifth Commercial Trust)
    Unlisted property trusts and syndicates
  • 14. Are diversified investment funds investing in listed property securities.
    Can be actively managed meaning the manager is trying to add value through the timing of their sales/purchases and security selection or passive meaning they invest according to the index weightings and only buy or sell when the index changes (low portfolio turnover)
    Actively managed funds include UBS Property Securities Fund.
    Passively managed funds include Vanguard Index Australian Property Securities Fund.
    Managed Property Funds
  • 15. Can be any business property.
    Doctor’s suites, Lawyer’s Chambers, Office Suites, Industrial Units, Factories, Shops.
    The superfund can lease the property to the member’s business on a commercial arms length deal.
    Business Real Property
  • 16. Cannot be leased to a member of the fund.
    Must be commercial arms length deal.
    Must be included in the funds Investment Strategy.
    Generally available in SMSF with very large balances.
    Residential Investment Property
  • 17. Property Warrants
    Are a way of borrowing in (gearing) a superannuation fund.
    Super Funds are prohibited from granting security (ie mortgage/lien or charge) on fund assets.
    Needs a special vehicle (legal structure) to do this.
    Debt Instrument Trust/Warrant Trust.
  • 18. Client wants to gear through super
    SMSF buys property
    Property/asset is held in Debt instrument for SMSF
    Beneficial Owner
    Ownership Certificate
    Debt instrument Trust
    SMSF Trustee
    Income
    Loan
    Loan Repayments
    Mortgage of Legal
    Interest
    Lending Institution or member
  • 19. At payment of final instalment:
    • Property or asset vests to the SMSF CGT and stamp duty free.
    • 20. Security/mortgage with lender extinguisehed
    Beneficial Owner
    SMSF Trustee
    Debt instrument Trust
    Ownership Vests
    Final loan repayment
    Mortgage extinguished/released
    Lending Institution or member
  • 21. In Summary