Baby boomers with a self-managed superannuation fund (SMSF) approaching retirement can boost their retirement savings by making use of the business real property rules endorsed by the Australian Taxation Office (ATO), an industry expert said.
SMSF Strategies principal Grant Abbott told delegates at this week’s 2012 SMSF Strategy Day that baby boomers should be looking to maximise any investments in residential property they may have outside of their SMSFs by ensuring these assets are now held within their super funds.
To do this and stay within the bounds of the contributions cap if the value of the property is over $150,000, SMSF trustees will have to treat the first $150,000 as a contribution and the remaining value as a related party loan, Abbott said.
Over subsequent time periods this loan will be forgiven eventually converting it into a contribution to the fund, he said.
The income in the meantime from these properties will be treated as income for the fund and will not be captured under the contributions caps.
To enable the transfer of the assets to the SMSF to come under a legitimate related party acquisition baby boomers will be relying on proving the assets are business real property under TR2009/1, he said.
Abbott said having more than one property would create a stronger argument for a property investment business using Example 14 under the ruling.
“For clients with four or five or more properties what we need to do is show the ATO they’ve got a business plan. They’re also looking for a property with a certain yield, that the tenants are being properly looked after and this can including the use of a property manager,” he explained.
This move will trigger a capital gains tax (CGT) event and as such Abbott recommended employing this strategy now while the economy is still a little fragile.
“As far as CGT goes probably the best time to be making the switch over is now or within the next year as the market values of properties go down,” he said.
Abbott pointed out trustees and advisers should also consider stamp duty implications with some states having considerations or exemptions.
