If you scroll down to the interest tables below, you’ll see it is a sea of orange on the variable table, which indicates a change of rate since last week’s newsletter, as the impact of the RBA’s last cash rate reduction kick in.
The last time all of Australia’s “Big Four” banks (Commonwealth Bank, Westpac, National Australia Bank, and ANZ) all offered their lowest advertised variable rate on a principal and interest home loan rates below 6% was over three years ago.
Given that approximately 75% of all home loans in the country currently sit with the Big Four, this will be very welcome news for the vast majority of borrowers.
In this week’s newsletter, we look at what the federal government’s proposed superannuation tax is all about, and how it may impact those who have invested in property via a self managed super fund.
Under Labor’s proposed $3 million superannuation tax reform, individuals with total super balances exceeding $3 million will pay an additional 15% tax on earnings attributed to the portion of their balance above that threshold.
This tax applies not only to realised gains (from sold assets) but also to unrealised gains, the increase in value of assets that have not been sold, such as property.
Impact on SMSFs with Property
If a self-managed super fund (SMSF) owns property as part of a portfolio exceeding $3 million, the following implications may apply:
Tax on Unrealised Gains: Even if the SMSF doesn’t sell the property, any increase in its market value may be taxed. This could create a tax liability without actual cash flow, putting pressure on liquidity, especially if the property is illiquid and not income-generating.
Valuation Requirements: Trustees may need to obtain regular, up-to-date valuations of property assets to comply with tax obligations, adding administrative cost and complexity.
Limited Tax Deferral Options: SMSFs can’t defer the tax until assets are sold or benefits are withdrawn. This may require the fund to hold more cash or sell other assets to meet tax obligations.
Disincentive to Hold Property: The policy may reduce the attractiveness of long-term property investment within SMSFs, particularly for those approaching or above the $3 million threshold, due to increased compliance and tax burdens.
How many SMSF’s have property investments?
As of the latest available data, approximately 24% of SMSF’s in Australia hold property investments. This includes both residential and commercial properties.
In summary, investing in property within a SMSF is clearly a popular strategy and the proposed taxes could be seen as a disincentive. The question that needs to be answered is whether even with the proposed taxes, does property within a SMSF still present as an attractive investment proposition?
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below arebased on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
