Proposed superannuation changes put forward by the Federal Government from 2016-17 are expected to have only a minimal impact on the attractiveness of investing in commercial, industrial and retail property. These changes include a proposed tax-free cap of $1.6 million on transfers from superannuation accounts to a retirement account, and a lifetime limit of $500,000 for voluntary after-tax contributions for workers. However, superannuation will remain a very attractive investment option for most people due to highly beneficial tax concessions for SMSFs.
Tax expert Dr Steven Enticott from CIA Tax in Bentleigh explains, “The $1.6 million cap is expected to only affect about 4% of the population – the very wealthy and those that have relatively high superannuation balances. These people will still only pay minimal tax on amounts above $1.6 million. It’s just that these amounts will no longer be entirely tax free. With tax rates for amounts above $1.6 million likely to still only top out at 15%, superannuation will still be a great investment vehicle for most people by providing tax and cash flow benefits.”
Enticott continues, “With the proposed lifetime limit of $500,000 for voluntary after-tax contributions likely to negatively affect a significantly greater number of workers, the likelihood of this change going through without amendments is minimal.”
The continuing challenge for SMSFs will be in finding attractive, long-term investments. As residential property is considered by many to be overvalued, with limited upside potential over the next few years, more SMSFs are looking to invest in high quality commercial, industrial and retail properties. As the non-residential market has not experienced the same high pricing growth as the residential market in recent years, this may result in superior returns for commercial, industrial and retail properties in future years.
There tends to be two main types of SMSFs that invest in non-residential properties – owner-occupiers and investors. Firstly, for owner-occupiers, a business owner with an SMSF can purchase a commercial site and lease the property back to the business. This can provide taxation benefits on the rent paid by the business owner to the SMSF a revenue stream for the SMSF that contributes to loan repayments (if borrowed to do so) and the owner-occupier benefiting from capital gains on the value of the property.
Matt Nichols, Managing Director, says “For an SMSF investing as an owner-occupier, you are getting the best tenant you know – yourself. This reduces operating risks, while gaining the financial benefits of the SMSF.”
The second type of SMSF that buys into commercial, industrial and retail property is as an investor. In these cases, the SMSF purchases a site and leases it out to a separate entity. The SMSF benefits from rental income and capital growth, and can provide flexibility to the SMSF by opening up leasing options.
Overall, Nichols expects demand from SMSFs for commercial, retail and industrial property to remain strong. He explains, “Around 90% of our commercial, industrial and retail property sales are made to SMSFs. Initial feedback from these clients indicates that these types of properties will remain as key investments for small and large investors. SMSFs will continue to provide very generous tax benefits for commercial property owner-occupiers and investors alike, despite some proposed tinkering by the government from next financial year.”
For further information, please contact:
Dr Steve Enticott, CIA Tax, 427 South Rd, Bentleigh (03) 9553 1210
Matt Nichols, Nichols Crowder, 358 South Rd, Moorabbin, (03) 9559 3888
Disclaimer: This information should not be considered as financial advice. People looking to invest in an SMSF should contact their accountant or financial advisor.