Treasury may target residential property in SMSFs as investment doubles in past year
The Australian Taxation Office may target the swelling investment in residential property through self-managed superannuation funds, with experts saying wariness of the sharemarket and changes to borrowing laws are driving growth.
ATO figures show a 45% growth in spending in the sector in the past four years, taking SMSF investments from $10.63 billion in September 2008 to $16.3 billion in September last year.
The increase in investments in residential property comes as the Treasury is understood to be investigating the super system for ways to raise extra revenue.
Senior tax writer for Thomson Reuters, Terry Hayes, and the national technical director for SMSF Professional Association of Australia, Peter Burgess, told SmartCompany it was likely the Treasury would investigate this area of super investments.
"I don't doubt they've already looked at it, whether they decided to do anything is another question. If they decide to do anything it will be very controversial and it would cast a considerable shadow over a significant portion of SMSFs," Hayes says.
SmartCompany contacted the Treasury for comment but it was unable to respond before publication.
In 2007 the superannuation rules changed to allow self-managed super fund holders to borrow money to invest in property. The laws are the same across the super system, but there are differences between the capital gains tax on the selling of a super investment property in contrast to one purchased and sold outside of the super system.
Typically, an investor selling a property would pay CGT at the marginal rate of up to 45 cents in the dollar, but in the super system if the property is sold after the investor turns 60 no tax is paid on capital gains.
Burgess says SPAA is concerned property spruikers are encouraging people to invest who aren't aware of the associated risks.
"There are many risks as well as benefits to investing in residential property. The risks are that it's a complicated structure and the property must be held by a separate trust. It is crucial the structure is put together properly and the loan documentation is spot on.
"There are also limitations on what you can do to the property once it's been acquired. You need to make sure it's just a single asset you are acquiring and it must be a single title. If you're looking to purchase a property made up of separate legal titles there are difficulties," he says.
Hayes recommends a SMSF holder considering investing in property seeks professional advice.
"Accountants and advisors would have been right on top of those borrowing rule changes and would have recommended investing in property. But you need to get pretty careful advice, but as long as you meet the rules there can be benefits," he says.
Currently, there are no regulations specifying who can give advice regarding borrowing money for SMSF property investments.
Burgess says the Treasury should make no "rash decisions" until such measures are in place.
"It has been previously announced they would amend the Corporations Law so that you must be licensed to give advice on these types of investments. The Treasury shouldn't make any rash decisions until such time that these consumer protection measures have had time to work," he says.
Burgess says the current investment figures should also be treated cautiously because they are still estimations, especially since for the 2011-2012 financial year returns are not due until May.
In total, SMSF investments grew by a third to $431 billion since 2008.