#008 - Avoid These SMSF Property Mistakes At ALL Costs ⚠️📉

In this episode of SMSF Insider, host Troy reacted to videos about the ins and outs of property investments within self-managed super funds (SMSFs). He clarifies the rules surrounding residential versus commercial property ownership in SMSFs, emphasizing that while residential properties cannot be lived in or rented to friends, commercial properties can be owned and utilized by business owners in their SMSFs. Troy also addresses a common misconception regarding tax savings when owning property inside an SMSF, stating that it does not provide personal income tax benefits. Additionally, he touches on a recent report from APRA revealing Australia’s worst-performing superannuation funds, highlighting the alarming statistics of negative returns and high fees affecting Aussie superannuation money. Tune in to gain insights into managing your super fund and making informed investment decisions.

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Please note: The information provided in this recording is for coaching and educational purposes only. It should not be considered personal financial advice. Everyone’s situation is different, so before acting on any of the content discussed, please seek independent financial advice tailored to your specific circumstances

Timestamps:

00:00:00 - 00:00:00: Introduction

00:01:25 - Australia's Underperforming Super Funds

00:02:48 - Residential vs. Commercial Property in SMSF

00:03:31 - Critique of Australia's Superannuation System

00:06:11 - Tax Implications of Buying Property in SMSF

00:08:01 - Winning the Lotto: Investment Strategies

00:10:51 - Concerns Over Superannuation Withdrawals

Episode Transcript

(00:00):
If you buy a property in a super fund, if it's residential, you can't live
in it, you can't put your mates to live in it, it's prohibited there. But if you buy a commercial property
So yes, a great strategy that we see with business owners
and want to own the property or the premises in which they operate.
Now, this is really important to understand. Buying property

(00:23):
in an SMSF will not save you on
When you own a property inside your SMSF, there is a bit of a misconception that
it will save you money on tax, on your personal income
Zutton has said that a solution would be to allow people, Australians,

(00:45):
This is so bad. Oh my god, Albanese, please
save me. Welcome to SMSF Insider, where we
help busy professionals to gain financial independence using an
SMSF. Hi, I'm Troy, founder of Blue Chip SMSF Services.
Now, over the last 20 years, I've helped thousands of Aussies manage the
complexities of self-managed super funds. And in this podcast, I'll

(01:05):
answer your questions, break down the myths, so you can take charge of your
financial freedom. Let's get into it. Hi guys and welcome to
this edition of SMSF Insider. Today I'm
going to be looking at some social media content and
giving my opinion on what I see
Australia's worst performing and highest fee superannuation funds have

(01:28):
just been revealed in APRA's annual report. And amazingly,
these funds hold over $10 billion of Aussie superannuation money.
Of the funds analysed, they found that four were delivering negative
returns over the long term, which is insane in the current market environment.
48 of them are stinging customers with significantly high fees
and another 80 are performing, and I quote, very badly.

(01:51):
We see this a lot, underperforming super funds, there
are a lot of them out there. So that's why it
is important to check your returns and
make sure your asset allocation is
in line with your investment goals. So check
the portfolio you're invested in, make some changes if you

(02:13):
need to, speak to your advisor, speak to somebody who
can help you. But don't just sit there and accept negative
returns in an
environment where negative returns are just non-existent. The market
has done pretty well, so you certainly
should not be paying fees for negative returns. So

(02:38):
If you buy a property in a SIPA fund, if it's residential, you can't live
in it and you can't let your mates live in it, it's prohibited in there. But if you buy a commercial property
Yeah, exactly right. So if you own a
residential property in your SMSF, you cannot live in it, but
If you own a commercial or industrial asset inside

(02:59):
your SMSF, your business can lease that asset
or that property from your business and your SMSF
can collect the rent on a weekly, fortnightly or monthly basis. As
long as it is not higher than the average market rate
or lower, it needs to be in line with the market rates. So
yes, a great strategy that we see with a lot of clients, self-employed

(03:20):
clients, that business owners and
want to own the property or the premises in which
they operate, having it owned by their SMSF is
How dare the government take 10% of people's income
without ever asking them and forcing them to give it
to someone they've never met. Now, why can't we do what New Zealand did?

(03:42):
New Zealand had a referendum on whether or not superannuation should be compulsory. And
you know what they voted? They voted against it 92% to 8%. We're
not supporting investment in Australian assets. Well, there's already $600 billion
invested offshore. There's already $600 billion invested offshore
with superannuation. And I've got the clip when Bob Hawke said that

(04:03):
superannuation was going to be used to invest in Australian manufacturing.
This particular guy is saying that 10% of
everybody's wages is taken out without
even asking and invested offshore. Well, it's
not really the case. The 10% or 11.5% is taken

(04:23):
out. It's on top of everybody's salary. So
the employer, it's an employer expense, not an employee expense, and
then it is invested according to the
mandate of each superannuation fund. So I think that certainly
Australia wouldn't be in a very good space if
we didn't have the superannuation system. So it does actually

(04:46):
work. It just needs refining. And certainly from
what he's saying here, that the 10% is
taken without anyone's authority. Well,
that isn't actually the case. It's
taken on top of everyone's salary and it's paid for by the employer,
not the employer. I think what he wants to do, I think what he's saying is

(05:07):
he would like to see all of those funds invested
here in Australia, but I just think that the Australian market is so
small compared to the rest of the world that The
amount of money in the superannuation system, which is now in the trillions of
dollars If it was invested in
the Australian market, I mean, where is it going to go apart from? ASX listed

(05:29):
companies. It's all that's going to do is inflate the
value of those companies And
overvalue them. So And
from a risk mitigation perspective, I think having funds
invested overseas in certain countries is
not a bad option. It's not the be all and end all, but certainly you want

(05:50):
a little bit of diversification outside Australia because after
all, it is a very, very small market. Just quickly guys, if
you're a busy professional fed up with traditional super funds and overwhelmed by
the setup of your SMSF, we can help. Book in a call with my team
using the link in the show notes and let's build your future on

(06:11):
Now this is really important to understand. Buying
property in an SMSF will not save
you on tax. When you own a property in
a self-managed super fund, it's owned by the super and
it's tax deductible to the super fund. It's not tax deductible.
Yeah, so what Nicole is saying here is that when

(06:33):
you own a property inside your
SMSF, there is a bit of a misconception that
it will save you money on tax, on your personal
income tax, which is not actually the case. So, purchasing
property will only save you on your personal income
tax when you purchase that property in your own

(06:54):
name, which is not what happens when you purchase
a property through your SMSF. So, what
Nicole here is saying is actually correct. So,
if you're wanting to save money on
tax with your personal tax, then you need to
perhaps speak to somebody about having purchasing assets

(07:17):
in your personal name or the entity in which is receiving
an income and paying income tax. The SMSF is
a very low tax structure so it
will have its own tax deductions but certainly because it's
a low tax structure it's not going to be paying a
lot of tax, generally speaking. But certainly, Nicole is

(07:39):
correct, buying an SMSF or buying a property, I should say,
inside your SMSF will not save you on
your personal income tax. That is a separate strategy altogether.
One of the lottos has jackpotted to $70 million. If I was
to win it, not that I've even got a ticket in the competition, but if I won the lotto,
this is what I would do with the money. So if I start with my $70 million up

(08:01):
the top here, I would use $5 million of that to pay off my mortgage, buy
a holiday home, buy some cars, buy some toys. I
would use some of the money to give to family to help them pay off their mortgages, top
up super, those kind of things. Then I would use some of
the money to contribute to superannuation for my wife
and I. We don't yet have a self-managed super fund, but I would start one

(08:21):
given the money here. Given the time of year, we'd put $120,000 into
superannuation each now, just before the end of the financial year,
$360,000 in the new financial year. That's a combination of
$480,000 each added to super. Roughly a million dollars goes
into super on top of the balances that we currently have. I
would set up superannuation funds for my children. Both of my children are in primary school.

(08:44):
They do not have super funds just yet, but I would set up super funds
for them and I would do the same thing for them. $120,000, $360,000, get $480,000 into superannuation
for them now whilst they're in primary school, which means that no
matter what happens in their life, their retirement is going to be pretty set for them.
James Wrigley is referring to here when he's talking
about the $120,000 in this financial year and

(09:06):
then $360,000 in the next financial year. He's talking
about non-concessional contributions. With Self-Managed Superfund
or with any super fund, there are two types of
contributions, a concessional contribution and a non-concessional contribution.
The current cap for a non-concessional contribution is $120,000 per
year. But what you can do is

(09:27):
roll forward three years. So he's saying he put $120,000 in this financial
year for him, $120,000 in for his wife. He'd then wait
for the next financial year to roll around, and then he'd put in
another $360,000 each,
which is $120,000 times three, so three financial years.
And then he'd do the same for his kids. So he's referring

(09:50):
to mostly around the non-concessional contributions here. A
great strategy if you've won $70 million or you've won any sort
of money, any sort of windfall, inheritance, that
type of strategy, topping up your SMSF or your super
fund with both concessional and non-concessional contributions is
a great way to beef up your fund and

(10:12):
get it working for you sooner rather than later. Also, in addition to
those concessional or non-concessional contributions, it's
pretty important to, if you won $70 million or you get a big win for
like that, you probably want to get your structures right first. So maybe speak to
your accountant or advisor around getting your structures right,
being a family trust or whatever structure you

(10:33):
choose or your advisor helps you with. And then from
there, then you can go forward and do your investing out
Dutton has said that a solution would be to allow people,
This is so bad. And we know what

(10:55):
happens. Yes, we do. Because look at New Zealand. Look
at New Zealand. Look across the ditch. It's a disaster. It's a disaster. What
happens is that prices go up. Up. And
it doesn't assist people into home ownership.
No. And people end up with more debt They
end up with less retirement incomes and

(11:20):
Oh my god, Albanese, please save me. Yeah, look,
I don't think it's a good idea allowing people to withdraw money from super,
but please spare me with Albanese's responses and
advice around what's going to be best for Australians. I
don't think Division 296 is very good for Australians either. Yeah,
I don't think that withdrawing money from Super is

(11:42):
a great option for home ownership. It's
really going to help with the housing affordability. And I certainly
don't think that Albany's advice is
something that most people are going to listen to. when you've got a guy
here that's just introducing unrealized capital gains tax to super
funds. And then potentially, where does unrealized capital

(12:03):
gains tax go to next? Probably assets outside of super, who
knows? But certainly, Albanese, spare
me, please. Guys, thank you for listening to this episode
of SMSF Insider. It's been a great
and fun episode and we're looking forward to the next one.
If you have any comments, please drop them in the comment section below and also

(12:25):
let us know if there's something you want us to talk about in future episodes. We'd
love to hear your feedback and we'd
love to generate some content that you guys want to hear about.
Thanks again for listening. Thanks for tuning in to this episode of SMSF Insider.
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strategies we share to help you take control of your financial future. Find

(12:46):
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