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  Cadillac ATS Vs. The Wind

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  By metaops

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Hi, I'm Grant Abbott. I'm principal of SMSF Strategies and also chairman of the Australian SMSF Member's Association. Today I want to talk to you about property, but I want to talk about negative gearing. Now most of you think you know negative gearing really well. You know, where you actually get excess deductions either through capital allowance or through depreciation, or alternatively just making sure you've got your interest deductions. All of those piled up at the end of the year exceed, effectively, your income from that property and that can be then offset against salary wages or business income.

Now that all sounds very well, but that is so old-school. That is prehistoric, like pre-2000. These days what we do, is we actually negatively gear inside our self-managed super fund. Let me say that again, negatively gear inside your self-managed super fund. So what we do is we set up the self-managed super fund, the holding trust. See some of my other videos on how to set one of these things up. But what we do is we want to make sure that we get these interest deductions, capital allowances and depreciation to throw that superannuation fund into a tax loss. Now what are we going to do with the tax loss inside that fund? Here's the deal; what we're going to do is offset contributions tax. You see when you salary sacrifice from your employer, or if you're a small business owner, you put money into super and get a tax deduction outside, that money goes inside the fund, and there's no such thing as contributions tax that goes inside the fund, is assessable income. That assessable income can then be reduced by those negative gearing deductions. That means we don't pay 15% tax on our contributions, we may in fact pay 5%. Whereas if we've got enough negative gearing, we can even go down further; get an (01:43) property, you won't have any contributions tax at all.

Now here's the big deal. We negatively gear in super, but you think about what happens outside of super. You negatively gear, when you sell that property you're up for capital gains tax. The smart people know that you negatively gear inside super and then you sell once you reach age 55 or beyond. Remember, sometimes I've said, you've got to keep these until age 75. And why do we wait until beyond, because at that point in time we want that property without any gearing, we want it inside the pension side of the fund, and the beautiful thing about that, is that when you sell it, guess how much tax we have to pay? Nothing. And when we distribute it down to members, when we live on it as either a pension or we take it as a lump sum out of that pension account, guess how much tax we pay if we're over age 60? Zero. So we have the beauty of negative gearing and a capital gains tax exemption. That means hundreds of thousands of potential dollars in your pocket for your family's wealth over a period of time.

Anyway, that's Grant Abbot signing off with my best strategy ever, negative gearing inside a self-managed super fund.

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