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Crackdown on superannuation tax may create borrowing spike

Tougher superannuation rules may create an unintended spike in risky property borrowing by those with a self-managed super fund, with experts suggesting that the changes will force SMSFs to load up on debt in an attempt to increase returns.

While there are still incentives for people to wanting to own property within their SMSF, under the new rules announced in the 2016 Federal Budget, rather than being able to fund investments through their own equity, many SMSFs will be forced to take on more debt to do so.

Most of the superannuation changes are due to take effect from 1 July 2017. They include a $1.6 million limit on the amount that can be transferred from a super accumulation account into a retirement account and a new lifetime limit on non-concessional (after-tax) contributions of $500,000, backdated to 2007, which took effect on budget night.

In most cases, super funds are not allowed to borrow. The exception is the limited recourse borrowing arrangement, which is only allowed in Australia’s SMSF sector.

Since 2013, the Reserve Bank of Australia has expressed concerns over the number of SMSFs taking on debt to invest in property. More recently, the ATO has cracked down on SMSFs that don’t qualify for bank finance turning to related-party loans to buy property.

Posted on 12 May '16 by , under Tax.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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