This presentation looks at a case study to compare whether it is better to invest in property using a Self Managed Super Fund vs. individually. Full comparison provided across all marginal tax rates applicable for the 2011/12 financial year.

1. The Analysis of property investing
SMSF vs. Individual

2. Case Study – Starting Point
• Acquisition of an off-the-plan
apartment for $450,000
• Acquisition to include borrowings
• Establishment costs of $4,000
• Yearly expenses of $3,000
• Depreciation/Capital works deductions
of $16,000
• SMSF investing supported via
concessional contributions
• Salary increments at 4%
• Sale costs (today’s value) of $10,000
• Starting assumption of retirement in 9
year’s time
• Do you buy personally or using a SMSF
Limited Recourse Borrowing
Arrangement (LRBA)?

3. Case Study – Variables
• Loan-to-value ratio (LVR)
• Repayments - P&I or Interest-only (I/O)
• Yield (rent and occupancy)
• Capital growth
• Lender type & interest rate
• Term of loan
• Expenses, Depreciation & Building
Allowance
• Ability to contribute to super / servicing
• Timeframe to retirement

4. Case Study – Variables

5. Case Study – Variables
IRR to
anticipated
sale
date, includin
g CGT
Required
support –
contributions
or reduction in
take home pay

6. Case Study – Variables

7. Impact of Loan to Value Ratios
Comparing the impact of loan-to-value
(LVR) ratios between a SMSF vs. individual
borrowing to acquire property

8. Loan-to-Value (LVR) Impact – I/O
Loan-to-Value (LVR) Impact – I/O
IRR to projected date of sale - LVR 40% Capital gain in
8 accumulation
phase (CGT 10%)
7.5
7
6.73%
% RoR
6.5
Identical IRR to 46.5%
individual taxpayer
6
5.5
5
5 7 10
Years to Sale
SMSF Individual - $50k Individual - $100k Individual - $150k Individual - $200k
© The SMSF Academy 2011

9. Loan-to-Value (LVR) Impact – I/O
Loan-to-Value (LVR) Impact – I/O
RoR to projected date of sale - LVR 60%
8.5
8
7.5
7
% RoR
6.5
6
5.5
5
5 7 10
Years to Sale
SMSF Individual - $50k Individual - $100k Individual - $150k Individual - $200k
© The SMSF Academy 2011

10. Loan-to-Value (LVR) Impact – I/O
Rate of Return Analysis to projected date of sale - LVR 80%
11
10.5
10
9.5
9.17%
9
% RoR
8.5 Capital gain in
accumulation
8 phase (CGT 10%)
7.5
7
6.5
6
5 7 10
Years to Sale
SMSF Individual - $50k Individual - $100k Individual - $150k Individual - $200k
© The SMSF Academy 2011

11. Impact of Loan Repayments
Rate of Return Analysis - P&I vs. I/O
Comparing the impact of:
12
• Running an interest-only
(I/O) loan; or
10
• Do you make principal and
interest (P&I) repayments?
8
KEY ANALYSIS POINTS:
% RoR
6
• Comparison after 10 years
• High MTR taxpayer
4
benefits from I/O due to
deductibility
2 • SMSF significantly superior
with P&I
0 – 85c in every $1 available for
SMSF Individual - $50K Individual - $100k Individual - $150K Individual - $200K
loan repayment
(30%) (38%) (38%) (45%) – Income concessionally taxed
Interest Only - 70% LVR P&I Repayments - $30k

12. Impact of Interest Rates
Rate of Return Analysis - Interest Rate changes
14
KEY ANALYSIS POINTS:
12 • Comparison after 10 years
• Higher interest can be
10
equally beneficial to SMSF
as high-MTR taxpayer
8
– If it can be supported by
% RoR
concessional contributions
6
• Lower interest rate is
4
superior within SMSF due
to acceleration of
2
repayments
– 85c in every dollar to repay
loan
0
SMSF Individual - $50K Individual - $100k Individual - $150K Individual - $200K
(30%) (38%) (38%) (45%)
Interest Rates at 7% Interest Rates 2% higher (9%) Interest Rates 2% lower (5%)

13. Impact of Yield/Occupancy
Rate of Return Analysis - Impact of
Yield/Occupancy
14
KEY ANALYSIS POINTS:
12
• Comparison after 10 years
• Yield overall only has limited
10 impact for a SMSF
– Mostly uniform IRR with
8 Individuals
% RoR
• Higher-MTR taxpayer benefits
6 through negative gearing
• Lower-MTR needs cash flow to
4
support loan repayments and
lower negative gearing benefit
2
• SMSF with concessional
0 contributions will potentially
SMSF Individual - $50K Individual - $100k Individual - $150K Individual - $200K have limited negative gearing
(30%) (38%) (38%) (45%)
Yield $350 p/wk Yield 2% lower - $180 p/wk Yield 2% higher - $520 p/wk

14. Impact of Capital Works/Depreciation
Rate of Return Analysis - Impact of
Capital Works deductions
10
KEY ANALYSIS POINTS:
9 • Comparison after 10 years
8 • SMSF significantly better off
7 where little or no capital
6
works/depreciation
% RoR
5
• The longer the time
4
horizon, high-MTR taxpayer
3
will benefit from tax
2
deductions
1
– SMSF ‘claws back’ via CGT
0
benefit when in pension phase
SMSF Individual - $50K Individual - $100k Individual - $150K Individual - $200K
(30%) (38%) (38%) (45%)
With Capital Works deductions ($16k) No captial works deductions

15. Impact of Capital Gains
Rate of Return Analysis - Impact of Capital
Growth
16
KEY ANALYSIS POINTS:
14
12
• Comparison after 10 years
10 • Capital gains within SMSF
% RoR
8 clearly beneficial
6 – No CGT in pension phase
4 • If capital growth is
2 low, taxpayer may benefit
0 more outside of super
SMSF Individual - $50K Individual - $100k Individual - $150K Individual - $200K
(30%) (38%) (38%) (45%) with tax deductions
Capital growth of 4%
Capital Growth 2% less than expected (2%)
Capital Growth 3% higher than expeected (7%)

16. Conclusions Conclusions
• There is an optimal exit strategy time
• Requires regular analysis to maximise benefit of property
investing
– Need to connect the inflows and outflows to the IRR calculation (e.g.
concessionally taxed contributions)
• SMSF provides a highly tax-effective structure to borrow
– Maximise repayment capacity due to concessional tax treatment
– Compulsory savings built into strategy (9% SGC)
– 2 inflows : 1 outflow to support SMSF loan
– Significant capital gains tax benefits (especially pension phase)
• Visit http://thesmsfacademy.com.au/smsf-calculators/ to
access the SMSF Property calculator

17. www.thesmsfacademy.com.au
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