Investing in property with superannuation

Andrew Hayes

This document has been prepared by Wealth Engine Pty Ltd ABN 38 142 579 an Authorised Representative of WealthSure Pty Ltd AFSL 238030 and is intended to be a general advice only.

The document is not intended to be comprehensive and should not be relied upon as such. In preparing this document, we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this document to particular circumstances.

Wealth Engine Pty Ltd, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained in this document.

General Advice Only

Superannuation is an investment structure designed to provide money for your retirement. (Sole purpose test)

Superannuation is not an investment itself.

It is a special type of trust, that the government has given concessional tax treatment to, in order for Australians to provide for their own retirement rather than rely on the age pension.

Has a full set of legislation governing what it can and can’t do. Superannuation Industry Superannuation Act (1993)

Understanding superannuation

Industry Super Funds. Traditionally run by unions along industry

lines eg CBUS for construction and building, HOSTplus for Hospitality, HESTA for Healthcare workers.◦ Low cost◦ Not for profit◦ No advice or advisor attached◦ Accumulation based, some pensions offered◦ Market based choice of investment.

Types of superannuation funds

Public Sector Super Government owned and funded, either state

or federal eg NSW State Government SSS, Commonwealth CSS◦ Not for profit◦ Low cost◦ No advice or adviser attached◦ Either accumulation based or defined benefit◦ Can have pension accounts◦ Only accumulation schemes have market based

choice of investments.

Types of superannuation funds

Corporate Super Funds Employer chosen and sponsored. Usually master fund/trust based though still

some significant company run funds eg Telstra.◦ For profit. Eg MLC, Colonial, ING, BT ◦ Have adviser attached◦ Still relatively low cost.◦ Accumulation based◦ Market based choice of investment

Types of superannuation funds

Personal Super Funds Chosen by you. Master fund/trust based eg BT Super Wrap,

Macquarie, MLC Masterkey, AMP Flexible Lifetime◦ For profit◦ Advisor attached◦ Higher cost◦ Accumulation based with option to roll to a

pension.◦ Wide and deep market based investment choice.

Types of superannuation funds

Self Managed Super Funds (SMSF) Set up and run by the members (up to 5). Directly regulated by ATO. Can use any type of investment platform.

◦ Not for profit◦ Advisor attachment optional◦ Highest cost◦ Accumulation and pension accounts available◦ Widest and most flexible investment choice.

Types of superannuation funds

Superannuation funds, including self-managed super funds (SMSF), have always been able to invest in property.

Only defined benefits funds do not give you a choice of market based investments.

Investing in property using super

Long term asset class returns 20 years to December 2007.

Listed Property Securities. Unlisted property trusts and syndicates. Managed Property Funds. Business Real Property. Residential Investment Property. Property Warrants.

Types of property investments available

Listed property securities are managed investment schemes and companies that are traded on the ASX and can include.◦ Real Estate Investment Trusts (A-REITS) eg

Commonwealth Office Fund (CPA), ING Industrial Fund (IIF).

◦ Property Development/Management companies.eg Mirvac Group (MGR) Stockland (SGP).

◦ Stapled securities which usually contain a share in the management company and a unit in the property trust. Eg Westfield Group (WDC)

Listed Property Securities

Are managed investments which are not listed on the ASX.

Are very diverse everything from caravan parks (Aspen Village Fund) to single/small building offers (Invetsa Fifth Commercial Trust)

Unlisted property trusts and syndicates

Are diversified investment funds investing in listed property securities.

Can be actively managed meaning the manager is trying to add value through the timing of their sales/purchases and security selection or passive meaning they invest according to the index weightings and only buy or sell when the index changes (low portfolio turnover)

Actively managed funds include UBS Property Securities Fund.

Passively managed funds include Vanguard Index Australian Property Securities Fund.

Managed Property Funds

Can be any business property. Doctor’s suites, Lawyer’s Chambers, Office

Suites, Industrial Units, Factories, Shops. The superfund can lease the property to the

member’s business on a commercial arms length deal.

Business Real Property

Cannot be leased to a member of the fund. Must be commercial arms length deal. Must be included in the funds Investment

Strategy. Generally available in SMSF with very large

balances.

Residential Investment Property

Are a way of borrowing in (gearing) a superannuation fund.

Super Funds are prohibited from granting security (ie mortgage/lien or charge) on fund assets.

Needs a special vehicle (legal structure) to do this.

Debt Instrument Trust/Warrant Trust.

Property Warrants

SMSF Trustee

SMSF buys property

Ownership Certificate

Beneficial Owner

Mortgage of Legal

Interest

Income

Loan Loan Repayments

Lending Institution or

member

Debt instrument

Trust

Client wants to gear through super

Property/asset is held in Debt instrument for

SMSF

SMSF TrusteeOwnership Vests

Beneficial Owner

Mortgage extinguished/released

Final loan repayment

Lending Institution or

member

Debt instrument

Trust

At payment of final instalment:

•Property or asset vests to the SMSF CGT and stamp duty free.

•Security/mortgage with lender extinguisehed

In Summary Industry

Fund

Public Sector

Defined Benefit

Public Sector Accumulation

Corporate Fund

Personal Fund

Self Managed

Super Fund

Listed Property Securities

— — Some Some Yes Yes

Unlisted Property Trusts

— — — — Yes Yes

Managed Property Funds

Yes — Yes Yes Yes Yes

Business Real Property

Some Some — Rare — Yes

Residential Investment Property

— — — — — Yes

Property Warrants — — — — — Yes