AU Superannuation changes hit housing
Property Here - Tuesday, April 16, 2013
IT was a beautiful love affair while it lasted. But alas! It was over too soon.
The blossoming relationship between self-managed superannuation and residential real estate was crushed by last week's Federal Government announcement of more super changes, which were targeted at the wealthy but will affect many others.
The decision to slap a 15 per cent tax on retirees' super pension income above $100,000 can also hit small real estate investors who have just one property sitting in super.
Buoyed by rule changes in the late 2000s that allowed people to borrow money within a self-managed super fund, everyday Aussies have been flocking to SMSFs, which now have about one million members.
Many people have used borrowed money to buy a house, hoping to hold it for 15 or 20 years until retirement and then enjoy a tax-free capital gain on their investment.
Not any more. The planned new tax puts an end to that because of the lumpy nature of real estate. It's not like shares where you can sell and buy a bit each year, and the one-off tax bill could be tens of thousands of dollars.
If houses double in value every decade and you hold a $500,000 property for 20 years, that's a $1.5 million capital gain, and the new rules mean only $100,000 of that is tax-free. Under the old rules the entire $1.5 million was tax-free.
Even those who bought property in a SMSF earlier can still get stung, although they first have another 11 years of tax-free growth in their property. The Government says the new reforms only apply to capital gains that accrue on existing assets after July 2024. Holding property within a SMSF could still be better than holding it outside of super, where 50 per cent of the total gain is added to your taxable income for the year.
But it will depend on many factors including the size of the gain, and other assets you have inside and outside of super. So retirement planning may require you to predict the growth to come from your real estate. Confused, anyone?
The only bright spot from these changes is for real estate agents, who may benefit from more sales as SMSFs turn over their properties more often to avoid capital gains growing too large. The marriage between SMSFs and property may still be salvaged, but it's taken a beating.
Read more: http://www.news.com.au/realestate/experts/superannuation-changes-hit-housing/story-fneofxxf-1226621569973#ixzz2QagYn8VB