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Investors looking to acquire property through their super fund have been warned that new measures currently before Parliament could impact property purchases made this year.
Last week, the government introduced Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 into Parliament.
One of the measures contained in the bill will add the outstanding balance of a loan for a self-managed super fund (SMSF) to a member’s total superannuation balance for certain individuals. The total super balance (TSB) is the amount of superannuation benefits held by an individual and can impact what contributions they are able to make.
If a member has a total superannuation balance above $1.6 million, they can only contribute $25,000 a year as they will be restricted from making non-concessional contributions.
This means that loans taken out for large values could tip an SMSF trustee over the $1.6 million cap, restricting their ability to pay back the loan.
Heffron SMSF Solutions head of SMSF technical and education services Lyn Formica said the changes will only impact SMSF investors who are in retirement or have a related party loan that has not been obtained through a commercial lender.
“The first thing would be to identify whether the SMSF will be caught by the proposed changes – many SMSFs won’t be as the bill only captures new LRBAs... where the lender is a related party of the fund or the member has satisfied a condition of release with nil cashing restrictions,” Ms Formica said.
“Even if the member will have a proportion of the outstanding LRBA debt included in their TSB, that may not be disastrous if they weren’t planning on utilising any strategies for which TSB is relevant, e.g. making non-concessional contributions [or] utilising the catch-up concessional rules.”
Australian Executor Trustees senior technical services manager Julie Steed said given that the start date for the new measure is 1 July 2018, it could impact clients looking to make property purchases through their SMSF this year.
“The 1 July 2018 proposed start date for the LRBA measure may mean clients looking to undertake transactions in 2019-20 need to factor the varied total super balance calculation into their actions,” Ms Steed said.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.