Negatively geared properties have been a preferred method of Australians to create wealth for a long time and it's simple to understand why with evidence-based capital growth, the ease of borrowing to finance purchases of property blue world city islamabad and also a huge tax refund at the close in the calendar year.

However, is this the best choice now that SMSFs have the ability to borrow to acquire residential and commercial property? This article will compare every strategy and provide details to help you make an informed choice on your next (or the first) home investment purchase.

First Match Financing:

To fund the purchase of your investment property, you're going to have to take out a loan. This is a means of paying an appointment to the banks. In Australia the home lending market is dominated by the big players. When it comes to the loans that are available to SMSFs, there is nothing different. Leading the pack are Westpac, NAB and St George. CBA also offers a loan product - however it is more restricted than the other.

The LVRs offered when you take out an SMSF loan, compared to a conventional investment property loan are slightly reduced generally being 72% to 75 percent for residential property, and 65 percent for commercial property. This means you'll typically need a larger deposit when buying through an SMSF, however for the vast majority of people this is not going to be an issue as it is likely that you have more available in your super than sitting in your savings account.

In addition to the lower LVRs in addition to the lower LVRs, the setup charges and the legal fee charged by the banks are significantly higher for a SMSF loan when compared with a typical investment property mortgage. These additional costs could be offset by extra superannuation funds you have available - i.e. you don't have to fund it from your own pocket.

Concerning the lending aspect, borrowing with an SMSF is almost always higher than an ordinary purchase property loan, both with regard to the way it's set up.

Negative Gearing: 1 SMSF: Nil

There's a compromise however. If you personally have enough equity in other properties to finance certain or all of the loans that the SMSF needs to make in order to finish the purchase of a house, you can become the lender and loan to the SMSF. This is called'member financing' and can be used as a replacement or in addition to financing from banks. This approach significantly lowers borrowing costs.

Second Match - Taxation:

You may be thinking about what the tax consequences are when you compare negative gearing against the SMSF purchasing a similar property? It works like this: A property is negatively gearing when the taxable income generated from the property is lower than the amount of deductable expenses related to it.

For example if your negatively adjusted property was costing you $200 more per week, for the duration of one financial year your overall tax deduction (negative rent) could be in the range of $10,000. If your marginal tax is at 30 percent plus 1.5% Medicare you would expect to receive a refund of about $3150 at the end the year. The total amount is still paying around $7,000.

If a home with similar expenses was held by your SMSF and you are able to salary sacrifice the equivalent of $200 of your pre-tax income to cover the loan repayments and any other related costs. There is no tax to pay on income tax on any amount you sacrifice your salary, so when that amount is $10,000 over the course of a year, then similar to the example above, your tax savings are identical - but instead of paying ATO every week and receiving a refund at the time the year is over, you are simply not paying tax on that amount to begin with.

In the present, as you be aware, any concessional contributions made by employers' such as salary sacrifice into super are tax-deductible by Super fund owners at 15 percent. However, the SMSF is also entitled to the same deductions in relation to the property you live in thus there will be an impact on tax that is negligible.

In other words, when you compare the strategies and strategies, the week-to-week tax impact is identical. However, when it's time to sell the property and realize the capital gain the SMSF is the clear winner. When the house is held more than twelve months The SMSF will pay 10% of the capital gain - so if the property was sold for more than $150k than what you paid, the SMSF will pay $15k in capital gains tax. If, however, you owned the property in your personal name and earned an earnings of $80k, tax and Medicare due would be less than $30k.

But wait, there's more! If you keep the property for long-term inside your SMSF and begin a retirement at age 55, the entire income (such as rent) and capital gains from assets that are used to fund the pension (such in the case of the real estate) are tax-free. If $15k tax is better than the tax of $30k the tax rate of $0 can be considered the Holy Grail.