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How to transfer a business property into your SMSF

Posted on June 18, 2020 by admin

Employers with a self-managed super fund (SMSF) looking to protect their business assets can consider transferring their business real property into their SMSF.

Transferring business property into your SMSF is useful to protect your assets in the event of your business failing or facing litigation. It is possible for SMSF members to transfer business real property (land and buildings used exclusively for the business) to their SMSF by using a combination of methods.

In-species transfer
An in-species transfer in the context of a business property refers to the ownership transfer of a property from one entity to another without the need to convert it into cash. During an in-species transfer, the value of the property is considered a contribution to your SMSF and is restricted by CGT regulations and contribution caps.

Cashing in your SMSF
You can use the cash available in your SMSF to buy your business property at market value as a normal cash purchase. The property must first be valued by an independent and qualified party before this is allowable. SMSFs that do not have enough sufficient capital to do this may consider using their non-concessional contributions cap to cover the outstanding balance.

Limited recourse borrowing arrangement (LRBA)
In the event that you do not have enough cash in your SMSF to outright buy your business property, you can apply for a loan using an LRBA. An LRBA can be obtained through a third-party lender, including your own business. You can borrow funds for your SMSF under an LRBA from your own business. However, before applying for an LRBA, consider its legal complexities and whether your SMSF will be able to maintain loan repayment fees on top of existing fees you may have, such as member pensions and accounting and auditor fees.

CGT retirement concession
The CGT retirement concession allows business owners exemption from CGT on business assets up to $500, 000 over a lifetime. If you are over 55, there are no associated conditions, however, if you are under 55, then you must place the money into a superannuation fund to receive the exemption.

This means that if you are under 55 and wishing to transfer a business real property into your SMSF, you can potentially do so without incurring any CGT liability (up to $500, 000).

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Avoiding mortgage default

Posted on August 26, 2020 by admin

As individuals struggle with cash flow through the coronavirus, the Australian Bankers Association records that repayments on almost 500,000 mortgages have been deferred for six months. While repayments can be delayed, they cannot be avoided altogether.

Lenders can send you a default notice the day your repayment is overdue. However, they could also wait until your repayment is overdue by 90 or more days. When you receive a default notice, you are given 30 days to repay the amounts you have missed in addition to the regular repayment on your loan. Individuals who are struggling with their home loan repayments can avoid mortgage default by considering the following.

Contact your lender
Lenders are generally willing to work with you through financial hardship. Don’t be afraid to contact your lender to discuss your situation and find out what options are available for you. Lenders are often willing to negotiate short-term variations to repayment schedules that both parties can agree to. However, make sure that you do not agree to unrealistic repayment conditions that cannot be met.

Many Australian banks are offering a six-month deferral on mortgage repayments (including interest) for customers who are experiencing financial hardship as a result of COVID-19. If this is you, contact your bank to see if this is an option.

Apply for a hardship variation
Mortgage holders may be able to change the terms of their loan or temporarily pause or reduce their repayments under a hardship variation. A hardship variation can still be requested after you receive a mortgage default. To apply for one, contact your lender’s “hardship officer” and tell them that you wish to change your loan repayments due to financial hardship. This will usually require you to explain why you are struggling to make payments and to estimate how long your financial problems will continue to determine how much you can afford to repay.

After submitting a hardship variation request, your lender must contact you within 21 days with the outcome of your request. They may ask you for more details regarding your request; in this case, they must contact you again within 21 days from when you provide the additional information.

Consider selling your home
Selling your home is a tough decision, but in some cases this may be the better option if your circumstances are unlikely to improve. If you get to the point where your lender takes possession of your home and sells it, it’s likely that you won’t make as much as if you sold it yourself. When you sell your house on your own terms, chances are you will get a better price and avoid having to pay the legal fees passed on by your lender. Inform your lender if you decide to sell your home; they may ask for proof, such as a copy of the contract with your real estate agent or property advertisements.

Renting out your home until you can afford to make repayments again may also be an option if you are able to live somewhere else during this period.

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