Sydney, 05 June, 2016 - An upcoming election and changes to superannuation contributions may lead to an interesting period in commercial property investment growth, with couples and individuals with self-managed super funds (SMSFs) more likely to consider passive investments to be held within their fund.
There have been several changes to the budget which will affect super contributions and make people of all ages look at their investment options, specifically the baby boomer generation. The SMSFs with the ability to purchase property within their fund can use the tax benefits of super to move swiftly and capitalise on current commercial property yields.
If the coalition is elected in June, from July 2017, there will be a cap on the total super account based pension benefits which have tax free status. This will be set at $1.6 million, which means when an individual retires, he or she will only be eligible to have $1.6 million exempt from tax. Any super benefits over this amount will be taxed at the super tax rate of 15%.
One of the changes, which is in force already, is the lifetime cap of $500,000 for individuals to make non-concessional or post tax contributions to super. This has major effects on the majority of our baby boomer population in places like Sydney and Melbourne who plan to downsize homes in retirement. Given the growth experienced recently they would likely have proceeds from their home and will be limited to only $500k tax free. As this is a lifetime cap, if an individual has made non-concessional contributions from 2007 to now, if it exceeds $500k they will be ineligible. This will have a major effect on a lot of people in our two biggest cities.
These changes to super and the way they are taxed mean that investing is now a more attractive option for many in SMSFs with the ability to purchase in their super. Commercial property is an attractive market in the face of residential growth easing, commercial and retail yields are compressing across the country and low interest rates are giving buyers’ confidence.
With superannuation being targeted for revenue and the government failing to provide provisions for individuals to not rely on the age pension, I believe that those with the ability will invest their money to see greater returns over long periods.
Tom Sheridan
CBRE | Capital Markets
Investment & Development Properties
T +61 2 9891 3330 | M +61 431 204 123
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