Chesworth told SMSF Adviser that with CGT concessions, full deductibility of expenses and zero per cent tax in retirement phase untouched, SMSFs retain structural advantages that no longer apply to individual investors.
He said this will likely reduce exposure to off‑the‑plan risks, curb the influence of property‑marketing groups and strengthen the case for established assets within superannuation.
“I think one of the benefits that have come through from the proposed capital gains changes is that they haven’t extended to superannuation, so we still have the 15 per cent tax if the asset is held over 12 months, it’s at the discounted rate, or if you’re in retirement phase, it’s a zero per cent tax,” Chesworth said.
“The other thing is that you can actually offset the expenses against the full income of the fund, rather than what’s proposed in your standard tax environment, unless it’s a newly developed property.
“Where I see this shifting is for an SMSF, if they’re looking at residential investment property, they will likely be shifting their focus to established properties, because they still have access to all those benefits. The investor market may more so be leaning to the newly developed properties, so that means you’re competing in a different market.”
Chesworth said, after nearly 20 years in the SMSF lending space, he has seen a trend over the years in property marketing and “one-stop shops” that focus on newly developed properties.
“This is where my concerns are as with that is the added risk it puts on SMSF sector especially in terms of valuation. For example, if you’re purchasing and property now but settlement is in 18 months there are risks involved,” he said.
“Will you still be employed? Will the spouse still be employed? Will you have other dependents, and what will your health be like?”
He said that with the proposed law change, there will potentially be a change in the dynamics of the investment market.
“The people buying newly developed properties were previously after depreciation benefits, and that’s still going to be the case in newly developed properties. They don’t actually have a lot of weight in a concessionally taxing environment,” he said.
“When you buy an established property, generally the valuation on that purchase comes in on the purchase price, because it’s been sold on an open market. With newly developed properties, often once a premium is paid and the lender’s valuation comes in and you can find there have been inflated commissions paid.
“So, when you start looking at comparables in the SMSF in the space, you’ve got a newly developed property with a shortfall in the value.”
Chesworth said he is hoping with the CGT changes there will be a greater trend for focusing on established properties, as it will remove a lot of the risks associated with newly developed properties.
However, he said for any SMSFs looking at navigating the changes to the CGT rules it is best to seek independent advice.
“We’ve had a lot of changes go through the SMSF segment over the last couple of years with this Division 296 tax introduced, and that’s probably why the Government decided to give this segment a break for a while. For any SMSF looking at investing in property now, it’s important to do your homework and make sure it’s right for you,” he said.
“If you are going down this path and setting up an SMSF, actually set it up first before you rush and buy the property. Do your research on the property, pay the deposit from the SMSF account, don’t pay from another account and sort the paperwork out later, because that can cause issues down the track when it comes to the stamp duties.
“The other recommendation is it’s important you will have your accountant, ideally you have a financial planner, providing the advice on suitability of an SMSF for you, and then you’ll need a solicitor or conveyor, ideally someone who understands the SMSF segment, because you have a single acquirable asset, you have requirements of acquiring it through a trust, you have trust law, which varies from state to state.
“There’s a level of support that trustees should be looking for, but I feel it’s important there’s a level of independence there as well. If you are in a circle where everyone’s advising you, saying, ‘here’s your accountant, here’s your planner, here’s your solicitor’, and sadly, if it’s linked into the property side, I would be very cautious there.
“I think the key thing is to ensure there’s a level of independence from the end purchase as well.”
