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David Potts
October 21, 2007
Source: The Sun-Herald
All that has stopped super from being one of the great tax wonders of the world is that you couldn't negatively gear with it.
Who said so?
You can negatively gear if you run your own super fund - thanks to a legislative change that went largely unnoticed (all right, so I missed it) last month. My excuse is it's in the Tax Laws Amendment (2007 Measures No.4) Act 2007 (No.143, 2007) - Schedule 3. I knew you'd understand.
Considering there is no capital gains tax in super after you turn 60, it seemed almost cruel not being able to borrow as well.
No longer do you have to fret about whether it is better to gear into property or go into super when you can do both in one package with even better tax breaks.
Compared with your garden variety negative gearing, there might be only a 15per cent deduction on the interest but then there's only a 15per cent tax on the income too. Keeping 85per cent sure beats the 55per cent from gearing if you're on the top tax rate.
Careful though; flicking your home or an investment property you already own into a DIY fund is still banned.
Otherwise, it is open slather with just one important condition, and a lot of predictably fussy peripheral ones.
You can't call it a borrowing but an instalment. It has to be an instalment warrant-type structure, like the recent T3 gig, where you put down a deposit and borrow the second payment (which is due later).
So it can't be your usual mortgage - this is super, after all - because it has to look and feel like an instalment warrant.
Not only can a DIY fund negatively gear and not pay capital gains tax, now there is a way around annual contribution limits.
The fund can be beefed up with borrowings rather than contributions.
Notice how the big funds, normally so forthcoming when there is a change to super, haven't said boo about this breakthrough for DIY super.
The last thing they want is more DIY funds springing up.
The general rule of thumb is that DIY funds need a balance of at least $200,000 to be a cheaper option than contributing to an off-the-shelf fund from the big end of town.
Gearing up makes that threshold far easier to achieve.
For small businesses that want to put their commercial property into super, the tax breaks keep on coming. There is no capital gains tax on selling to the fund, they get a tax deduction on the value, and the fund can negatively gear.