Released on: July 8, 2008, 7:18 pm

Press Release Author: Peter Kelaher

Industry: Real Estate

Press Release Summary: You can now use your superannuation savings as a deposit to
buy property in Australia

Press Release Body: With recent uncertainty in the Australian and Global financial
markets many people want to diversify their risk, and increase their yield on
investment through property investment. In September 2007, the Federal Government
made amendments and legislated through the Superannuation Industry (Supervision) ACT
1993 (SIS Act) section 67 (4A) to permit Self Managed Super Funds (SMSF) to borrow
to purchase an asset (e.g. real estate). For more information on the new legislation
visit the Australian Taxation Office
website(http://law.ato.gov.au/atolaw/view.htm?locid=\'PAC/19930078/67(4A)\'#67(4A)).

The SMSF segment presently represents about $286 billion in assets as at June 2007,
around about 25% of the total Superannuation Assets. Presently there is
approximately 375,000 SMSF in place with a projection of that doubling by 2012 due
to these changes in the SIS Act.

The old rules meant you had to buy the property outright in your fund, whereas now
you can borrow anywhere from 60% to 75% of the value of the property you are
looking at purchasing. Please also note that up to 4 individuals, not 5, can
group their super funds together to make a property purchase.

Questions and Answers:

Q1. How does my SMSF purchase a property?

The self managed super fund obtains a loan approval from our partnered alliance SMSF
Loans. They have access to all the SMSF loans presently on the market, and will
endeavour to choose the best lender for your circumstance. They can also arrange to
set up the whole SMSF structure that is needed to purchase the property for
approximately $2,500.00. (This does not include annual compliance and audit by your
accountant). Please note: You are most welcome to use your own accountant to set up
the structure, but be very careful that your accountant is being reasonable in what
they are charging, and that they are setting up a structure that conforms with the
lenders for the purchase of the property.

Once the loan structure is set up PK
Property(http://www.pkproperty.com.au/whoare.asp) will help search, locate and
negotiate the best property for your fund.

Q2. What are the tax advantages?

- Contributions made to the SMSF are taxed at 15% leaving 85 cents in every dollar
to contribute to the property compared to as little as 55 cents with your
traditional negative gearing.
- When using PK Property buyers agents(http://www.pkproperty.com.au/) services you
are paying our fees out of money that is already sitting in the fund taxed at 15%,
not your top marginal tax rate should you be hiring our services outside the fund.
- Maximum 10% capital gains tax on sale of property if held for at least 12 months
and potentially nil if sold in pension phase.
- Maximum of 15% tax on rental income.
- You may effectively receive a tax deduction (via salary sacrifice) for loan
repayments of the principal (which you cannot normally do).
- The interest costs are tax deductible and can potentially reduce the 15%
contributions tax to nil.
- And for small business owners, additional tax concessions and asset protection
from creditors may be achieved.
- Unlike other property investments, as a business owner you can \'sell\' the business
premises you own into your SMSF - and rent it back to your business.

Q3. What are the features of the SMSF structure?

- Choose any kind of property including residential, commercial, retail, and holiday
units.

- A super fund can purchase real estate let for business purposes from a member or a
related entity (i.e. this does not breach the \"in house asset\" rule under the SIS
Act). Investments in property other than \"business real property\" are permitted
provided the purchase is from an arms-length vendor.

- The legal owner of the real estate will be the Property Trustee.
- The beneficial owner of the real estate will be the SMSF.
- The lender has no recourse to the other assets of the SMSF, providing the SMSF
with absolute protection for its other assets.
- The loans are personally guaranteed by the member/s of the SMSF (subject to credit
approval). SMSFs can deal with the property however and whenever they like, in the
same way as investors can deal with \"normal\" investment
properties(http://www.pkproperty.com.au/silent_sales.asp) (e.g. lease, renovate,
repair, or sell), (subject to the terms of the relevant loan and mortgage).
- All rents are paid direct to the SMSF; Loan repayments are made in the ordinary
way from the SMSF.
- The SMSF can pay out or reduce the mortgage at any time (subject to the terms of
the relevant loan).
- When the mortgage is paid out in full, title to the property can be transferred to
the SMSF or the Property Trustee can continue as registered proprietor.

Q4. Can I occupy the property?

No. If a member of the SMSF occupies the property the \"in-house asset rule\" would be
breached. However, the SMSF can buy a
property(http://www.pkproperty.com.au/advice.asp?page=89) that the investor intends
to live in after retirement. This is possible if you transfer the property from your
super fund to yourself after you retire. You are permitted to buy a business
premises in your SMSF and rent it back to yourself.

Q5. I thought super funds could not borrow or charge their assets. Is this correct?

- That was correct, until amendments to the Superannuation Industry (Supervision)
Act 1993 (SIS Act) made in September 2007.
- Under the new section 67 (4A) of the SIS Act, SMSFs can borrow providing the
following conditions are satisfied.
- The borrowed funds are used to purchase an asset (e.g. real estate).

- The asset is held on trust for the SMSF by another entity (i.e. the Property
Trustee).
- The SMSF must have the right to acquire legal ownership of the asset by making
payment.
- The lender\'s recourse against the SMSF must be limited to the underlying asset
(i.e. the purchased property). The lender must not have a right of recourse against
other assets of the fund.

Q6. What other restrictions apply?

- SMSFs must comply with all regulations applying to superannuation funds.
- SMSFs may acquire up to 100% of the fund\'s total assets in the form of real
property. SMSFs must ensure that the level of investment in real property is in line
with the fund\'s investment strategy, including diversification of assets, liquidity,
and maximization of member returns in the fund.
- Where a fund invests 100% of its assets in real property, trustees must ensure
that the fund continues to meet these requirements, for instance they must ensure
the fund has sufficient liquidity to meet its liabilities (such as pension
payments).
- The government has also made it clear that super funds investing in these types of
investments must have appropriate risk management measures in place and must
understand the risks of investment.

Q7. Who pays what and when?

As the beneficial owner of the property and the borrower of the loan, the SMSF is
responsible to pay all the usual amounts that you would expect to if you had bought
an investment property and borrowed money on it in your own name rather than your
super fund. For example, your SMSF will be required to pay: council rates, water
rates, and land tax (if any); interest and other loan repayments; lender\'s fees;
repairs; property management costs; and any insurance premiums management fees
imposed by the Property Trustee.

Q8. What about land tax?

As the SMSF is the beneficial owner of the property, land tax is payable by the
SMSF. The SMSF will only have to pay land tax if the total land values exceed the
prescribed amount.

Q9. What happens when the loan is fully repaid? Can legal title be transferred to
the SMSF? Would any stamp duty or GST be payable with respect to the transfer?

When the loan is fully repaid, the SMSF is entitled to have the legal title
transferred to it. Depending on how the trust structure is set up and administered,
this transfer should be possible without incurring tax, GST, or stamp duty
liabilities (other than nominal) as the SMSF will already be the beneficial owner.
Of course, this position may change because of future changes in the laws.

Q10. How can I transfer the property?

The SMSF can direct the Property Trustee to sell to any third party (subject to
paying out the mortgage loan and any other amounts which might be outstanding).

Q11. Who can be the Property Trustee?

The Property Trustee should be an arms length trustee from the SMSF Trustee and the
members of the SMSF. This is to ensure that the transaction is not a sham, and the
related party and in house asset rules are complied with.

Q12. Is there an ATO product ruling for this loan?

No, there never will be because each individual\'s circumstances are different. Each
borrower and/or adviser should seek their own expert tax opinion, based on their
individual circumstances.

Property Market update:

Super ratings the super information agency says that superannuation funds are set to
record this financial year their biggest ever loss since records began 10 years ago.
On the other hand BIS Shrapnel Australia\'s most trusted source of information for
the property industry is forecasting capital growth for property over the next three
years to be around 18%, with Sydney\'s median house price to go from $584,000 to
$650,000. Property analysts are also predicting that rents will rise 50% in the next
4 years, with vacancy rates in NSW at a record 30 year low being just .8%.

BIS Shrapnel\'s report also says that Australia\'s population is expected to grow by
1.5% through 2008/2009 its highest level since the 1980s. BIS says we are
experiencing record net overseas migration which is underpinning what is already
strong underlying demand for housing but our main problem is that we are not
building enough houses for upcoming demand.

At PK Property we are presently experiencing a real resurgence in the property
investment(http://www.pkproperty.com.au/investment.asp) market in the price ranges
of $350,000 to $1.5 Million. With great purchasing prices and strong rental returns
some properties are returning 5 % yields. I personally have not seen yields like
that since I started my business 11 years ago.

So if you are looking at upgrading or wanting to buy an investment property either
in your self managed super fund or out of your fund, I do believe there is a window
of opportunity for great purchasing up until Christmas.

Please email peter@pkproperty.com.au today should you want to make an appointment
with our team to talk further on how you can benefit from these new superannuation
changes, or just for a general chat on your property requirements.

Disclaimer: This information is provided as a general guide only and is not advice
or a recommendation to enter into any transaction, and is subject to the final
documentation. This information has been obtained from sources that PK Property
Search & Negotiators believed to be reliable and PK Property Search & Negotiators
makes no representations as to, and accepts no responsibility or liability for, the
accuracy or completeness of the information. PK Property Search & Negotiators and
its affiliates do not purport to be legal, tax, accounting, financial or regulatory
advisors in any jurisdiction. PK Property Search & Negotiators acts neither as an
adviser to, nor owes any fiduciary duty to any recipient of this information. Prior
to entering into any proposed transaction, the recipient should independently
evaluate the risks of such a transaction and the recipient\'s ability to assume such
risks from their adviser.PK Property Search and Negotiators strongly suggests before
you enter into any property purchase through your SMSF that you consult your
accountant beforehand.

Contact PK Property Search & Negotiators Pty Ltd:



Web Site: http://www.pkproperty.com.au/

Contact Details: North Shore & Northern Beaches Office:
Cremorne Town Centre, Suite 13, Level 1, 287 Military Rd, Cremorne NSW 2090 Australia
Phone +61 (0)2 9904 3444, Fax +61 (0)2 9904 3555.

City - Eastern Suburbs - Inner West Office:
Australia Square, Level 5, 95 Pitt St, Sydney NSW 2000 Australia
Phone: +61 (0)2 8249 8180, Fax +61 (0)2 9904 3555

PO Box 112 Cremorne NSW 2090
Phone +61 (0)2 9904 3444
Fax +61 (0)2 9904 3555
Mobile +61 (0)419 200 018
Email enquiries@pkproperty.com.au
http://www.pkproperty.com.au/