Land tax for super funds – What do you know?

I live in NSW and thinking of buying an investment property for my SMSF. On the matter of land tax, which I believe must be paid, what does super funds being entitles to a zero
related threshold mean?

Land tax is an expense that SMSFs which own investment property must pay annually. The tax also applies to property owned through a holding trust set up under a borrowing arrangement.

The tax charged is $100 plus 1.6 per cent of the unimproved value of land worth between $412,000 and $2,519,000. Both these dollar amounts are described as thresholds, with the higher amount known as the premium rate threshold.

Where a super fund owns a property valued below $412,000 threshold, no land tax is payable - it is therefore zero rated. The unimproved value of land is its value without any structural improvements. The value is determined by government valuers employed by the Valuer General.

 

I spend considerable time each week managing the investments in my $1.2 million SMSF. Considering I could be paying an investment manager sizeable fees to do this which would be tax deductible, what expenses can I claim? For example, computer and software, telephone and internet access, books, lectures, travel, financial newsletters and magazines? I also have a personal share portfolio that is worth a lot less than my super portfolio. Would I also be able to claim some of my personal time as a management expense?

As a SMSF trustee you can be reimbursed for out-of-pocket expenses that would normally be paid by the fund, but you can't claim your time, which is specifically excluded under the super rules.

That being said, it is very rare for fund trustees to claim general investment expenses because major costs such as brokerage are not regarded as an expense, as a super fund is not a trading entity.

This means investment costs such as brokerage can only be offset against a capital gain. If you do make a reimbursement claim and the expenses also relate to a personal portfolio, you would need to distribute them in a fair and reasonable way, setting down a rationale of why the fund is paying a particular amount. This does seem like a lot of work. Be aware if the fund buys a computer and software, which it could do, you couldn't use this personally or if you did your fund would have to charge you for this.

You should also know that by making any claims, you are effectively taking money out of your concessionally taxed super fund at a time when most people look for ways to maximise contributions to super.

 

My partner and I plan to boost our super with after-tax contributions from the sale of shares we own personally. Is the $180,000 a year undeducted allowance a long-term entitlement, and how does three-year averaging work?

The undeducted of after-tax contribution entitlement is a long-term entitlement that is indexed in line with increases in the tax-concessional contribution limit, which from July 1 rose from $25,000 to $30,000 a year. The limit is six times the tax-concessional contribution limit, which saw it increase from $150,000 last year to $180,000.

What you describe as three-year averaging is called a "bring forward" entitlement where if you are under 65, you can choose to make contributions of up to $540,000 over a three-year period. For example, you could contribute $540,000 in year one and nothing in years two and three. Or $200,000 in year one, $200,000 in year two and $140,000 in year three. But you couldn't contribute more than a total of $540,000 over a three-year period. After 65, the limit is an annual $180,000 and you must also satisfy the 40 hours in a 30 consecutive days work test to make this contribution.

If you require more information on superannuation taxation rules contact us today on 02 9299 7044 or send through your queries to admin@lockwood.com.au.

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