#014 - How SMSFs Can Save You Thousands in Tax 💸📊

In this clip, we delve into the world of self-managed super funds (SMSFs) and their role in purchasing cryptocurrency and property investments. Our discussion highlights the appeal of SMSFs for clients looking to expand their investment portfolios, particularly in real estate, despite the risks associated with crypto scams. We explain the tax implications of investing in property through superannuation, noting the benefits such as a low tax rate of 15% and reduced capital gains tax after a year of ownership. The episode also emphasizes the significant tax advantages that arise once clients reach retirement age, particularly when transitioning their funds into pension phase. Tune in to learn how to navigate these investment strategies effectively!

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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

00:02:34 - Zero tax benefits in super

00:04:01 - Misuse of SMSF funds

00:08:06 - Crypto exchange transaction restrictions

Episode Transcript

(00:00):
A lot of people were setting up self-managed super funds to purchase crypto
that they may not be able to do with the industry and retail super fund. And
whilst a lot of clients do really, really well in
the crypto space, unfortunately, it's one of those areas where
there seems to be a lot of people getting scammed. Most of our clients,
they're looking to continue their

(00:23):
portfolio, so they might have one
or two properties in their personal name, they can't borrow
any more in their personal name, but they really want to continue building their
property portfolio, and the perfect
way to do that is to continue that inside superannuation. Obviously,
there's some differences. One of the main differences with

(00:47):
owning property inside superannuation is how the
property is treated from a tax point of view. Obviously, when
you're investing in property in your personal name, you get
those tax deductions in your personal name. Everyone's
sort of heard of negative gearing and how that works. When
you invest in property inside super, negative gearing doesn't

(01:09):
really apply because the tax rate is already very low. It's
only 15%. If they were to sell the property after owning it for more than 12 months,
they'll only pay 10% capital gains tax, which is ridiculously low.
But the magic happens at retirement. Once
the clients hit retirement age, which for the majority of them is

(01:29):
preservation age, around about 60, and then
any time after that that they decide to retire, and you
don't have to retire at 60. Most people don't have the ability to retire
at 60. So whenever they decide to retire after that, when
they put the fund into pension phase, the tax rate goes
down to zero. You won't pay a cent of capital gains tax if

(01:50):
they were to sell the property. And if their strategy
was to pay the property off and live off the rental income forever and
a day until they drop off the perch, they won't pay any tax on that either. So
it's a really generous tax environment to own assets like residential property.
So yeah, so it's not just about owning property. There's
some pretty cool tax advantages to doing it inside Super

(02:13):
Yeah, that's a really powerful one when you're talking about the
tax advantages being zero. There's no
other, apart from having a company
established in the Cayman Islands, there's no other real tax
benefits apart from The biggest one

(02:34):
You can't beat it. Yeah, that's pretty cool. What
about some sort of horror stories? Have you had
any sort of horror stories over the years that you
can sort of tell me about that clients perhaps that
might not be following, doing things they shouldn't
do with their fund? How do

(02:57):
you deal with that? What do you do? Do you contact the
client? How do you fix that problem and
educate them? What do you do in that sort
I suppose you might call it a temptation. When you have an SMSF, I
mentioned it, a little bit earlier, that there is a bank account
that's attached to the SMSF. And for all intents and

(03:19):
purposes, it is a bank account. You don't get
a bank card to go and sort of tap or anything like
that. But it is a bank account because owning property inside
Super, you still pay all the same expenses. There's
still rates to pay. There are still those type of
property expenses to pay. And they must be paid out

(03:40):
of that bank account. I suppose for some clients, there
is a temptation to use that bank account for things that they shouldn't be
using it for. And obviously, if you've got an SMSF, you can
only use your SMSF funds for one reason, one reason only, and
that is for the betterment of your retirement. For
some clients, there is a temptation. And we have had clients in

(04:02):
the past that have used the funds that are sitting in their CMA
to go on holidays. That has happened. And yeah, I
think that's about as bad a thing you
could possibly do. To go on holiday. To go on holiday, yep. So
yeah, that's pretty bad. If that happens, so

(04:25):
with our tax team, we've
got someone that has a look at all of the transactions that have
happened with all of our funds, which is incredible. And
if there are any sort of dodgy looking transactions, legal
withdrawals, they'll be flagged. And
if it's one of the clients that's come through my channel, then I'll give

(04:46):
the client a call, ask them what they've done. Usually,
I mean obviously if the client's gone on holidays they know they've done the wrong thing,
but there have been occasions where the client has,
so I'll give you an example, so a client might
do some banking, they might have a Macquarie cash

(05:07):
management account, And they might do their personal banking with Macquarie
as well. And purely by accident, they may
have used the Macquarie cash management account to pay a personal bill.
And it was just a pure accident. So that happens as
well. Usually, if the client fixes it immediately, then
we'll just sort of write the relevant minutes. And then

(05:32):
it's fixed pretty quickly. But yeah, if
the client sort of spent a lot of money and they've gone on holidays and they don't have
the ability to pay it back, then they're going to
Just on that, I know when clients
do, if a client does withdraw money before meeting
a condition of release, that money is

(05:54):
then added to their personal income. So if they withdraw 100 grand,
that then adds onto their personal income, and then they're
taxed at up to 45 cents in the dollar. So not
only are they having to return the 100, they're then up for 45 grand in
tax on top of that. Pretty big no-no, but... With,

(06:18):
Just on that before I move on. A
lot of the clients, they don't realize that as part of
owning an SMSF, an external audit gets done
on their super fund every year. So they can't hide
anything. There is an external auditor that essentially
reports back to the ATO of that type of conduct. So

(06:40):
that type of thing can't be hidden. And
there's also a tax return that gets done on their SMSF as
well. So we go through all their transactions
in detail as well. So it's never going to be hidden. It's always going
to come out. Other horror stories? I'd

(07:01):
say that the majority of them are to do with
that type of thing. But there
is. So crypto is another one of those assets.
Obviously, crypto is a little bit more of a recent phenomenon.
But everyone wants to get into the crypto space. And a
lot of people are setting up self-made super funds to purchase crypto

(07:24):
that they may not be able to do with the industry and retail super fund. And
whilst a lot of clients do really, really well in the
crypto space, unfortunately, it's one of those areas where there
seems to be a lot of people getting scammed. So
there have been a few clients that have given their money to, you
know, dodgy crypto scammers and they've lost

(07:46):
it and they'll never get it back. So that's sort of
created a few issues for people that want to invest in
cryptocurrency with their superannuation. A lot of the banks have
sort of cracked down on that sort of thing. And some
of them won't even allow transactions to
Hey guys, just a quick disclaimer and just a reminder that this is

(08:10):
not personal advice. So make sure you speak with a licensed advisor before
making any investment decision. Thanks for tuning in to this episode of
SMSF Insider. If you got value from this, make sure you subscribe so
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