How New Super Legislation Impacts Investors Like You
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Australia’s COVID-19 property boom has continued apace, with housing prices up more than 2 per cent in May and more than 10 per cent since the pandemic hit.
How New Super Legislation Impacts Investors Like You
Some of the biggest superannuation changes in decades have passed Parliament. These are largely based on the understanding that a lot of people don’t pay attention to their Super. Similarly, many people aren’t aware that they can invest in property through their Super. Before I delve into how this strategy can be highly advantageous, let me run through what the recent changes entail.
Super is stapled to you
One part of the new legislation is that when you move jobs, your fund will move with you. This prevents a situation where you end up with your Super spread across multiple funds, which can be hard to track.
You’ll be told about underperformance
The second change is that underperforming funds will be named and shamed. If your fund doesn’t meet benchmarks set by the government, they will be obligated to communicate this to you.
You’ll get a boost to your Super
From July 1, working Australians will receive a 0.5% boost to their superannuation fund, taking it from 9.5% to 10%. This will increase 0.5% each year, until it reaches 12% by 2025.
It’s worth noting that these ostensible increases can sometimes fail to materialise in a way that benefits the individual, with employers often building these increased costs into a decrease in an employee’s base salary to make up the difference.
There won’t be a $450 minimum to Super
Previously, those who earn less than $450 a month were not eligible for superannuation payments. The new rules see this changed. So no matter how much you earn, you’re entitled to super. This change is set to particularly benefit part time workers, which are mainly women. In 2017–18, 44% of employed women and 16% of employed men aged 20–74 years old worked part-time. These updates to the minimum amount will commence July 1.
You can invest in property through a SMSF
Most people don’t give much thought to their Super. Much like tax, it can be dismissed as dry and boring. But learning about your Super – as with tax – can get you significantly financially ahead. Investing in property through Super is an often-ignored option, which is a huge shame.
Buying property through a Self-Managed Super Fund (SMSF) is an effective way to minimise tax, control your money and accrue wealth long-term. Given some other recent changes in government policy, investing through your SMSF isn’t reserved for those more established in their career.
Tax minimise and get into property sooner
The new First Home Super Saver Scheme lets you make voluntary contributions to your super – up to $30,000 – and withdraw this amount (plus earnings, less tax) to buy your first home. Voluntary contributions include before-tax contributions such as salary sacrifice, and after-tax contributions.
Why does Super exist
The idea behind Super is that people will have enough money, come retirement, to be able to support themselves when they are no longer working. For many, though, this isn’t the reality. $154k is the median balance for a male at retirement and it’s completely inadequate to maintain a comfortable lifestyle for 10-20 years. In 2018, you’d need a lump sum of approximately $545,000 to retire comfortably.
The good news about Super
There are many ways to put the control back in your own hands. Rather than rely on your Super fund to deliver you a solid return, you can invest in property through your SMSF.
There are numerous benefits to this:
Invest in an asset class you understand
Property is tangible and, compared with shares, much easier to understand. Most people don’t know what assets their Super fund invests in – even though this information is available. By investing some of your Super into property, you regain control.
Super has a lower tax rate
Superannuation income is taxed at 15%, and superannuation capital gains are taxed at 10%. In the retirement phase, there’s no tax at all.
Property provides leveraging capability
When purchasing property through a SMSF, individuals can secure finance of up to 70% of the property value, provided they meet lender criteria. This means they only need to invest a small amount of their funds into the property.
You can increase the value of your asset
Unlike other asset classes, you can increase the value of your property through repairs and improvements.
What’s involved in setting up a SMSF?
Financial planners and accountants can assist people in setting up their SMSF. The costs range from approximately $3,000 – $6,000, depending on the individual’s requirements. Once the fund is set up, there will be accounting and management fees which can range from $1500 – $3,000, again depending on individual requirements and the number of properties in the fund.
For comparison, the average person will pay 1.23% of their account balance in fees, to their industry fund. According to a Rice Warner Actuaries 2013 report, the annual operating costs of a SMSF in the accumulation phase can range from $1,163 to $2,367.
Investing through Super is more accessible than you may think
Many AllianceCorp clients have been able to successfully build their investment portfolio by investing in property through their SMSF. Darren and Priscilla are one such couple: “We started off with the one property… we’ve actually purchased another property through our self managed super fund, which has settled. And we’ve got tenants in there, which is fantastic. We’ll have three properties in our portfolio in two and a half years, which is very exciting for us.” Working with a financial planner, an individual can purchase a property with as little as approx 140k. To learn if this may be an option for you, you can request a strategy session with an AllianceCorp Senior Property Coach below.