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The Equiti Warrant Trust

The Equiti Warrant Trust is an innovative financial structure developed to facilitate a Self Managed Superannuation Fund (SMSF) borrowing to invest in direct residential or commercial property.

As a general rule, superannuation funds are restricted from borrowing to acquire direct property assets. Recent amendments to section 67 (4A) of The Superannuation Industry (Supervision) Act 1993 (“SIS”) now provides those that have a SMSF with an exception to this general rule.

Whilst there are many important considerations and certain restrictions that will need to be highlighted, the Equiti Warrant Trust essentially means that your SMSF can now borrow money to invest in tax effective property!

This is an effective way for an individual that has a positive long-term view of the property market coupled with a desire to leverage their current superannuation assets to potentially build their own direct superannuation property portfolio.

The many tax incentives introduced by the Government into superannuation mean that many Australians may potentially accumulate wealth faster in a superannuation environment than they could by investing in identical assets outside of their superannuation.

Although there have always been many benefits of investing in a superannuation environment, it has only been in very recent times that Australians have begun to show an increased interest in managing their personal superannuation assets.

So why has this efficient investment vehicle been largely ignored by most Australians?

One possible reason is that many feel that they have limited choice when it comes to their superannuation money and, as such, have been restricted to certain investments.

Many people may feel more confident investing in real estate but, until now, unless their superannuation fund could afford the full purchase price of a property, superannuation funds were restricted from borrowing money to make this type of investment.

With the introduction of the Equiti Warrant Trust, superannuation funds can now invest in direct property without the need to have accumulated the full purchase price.

Buying property through your SMSF not only enables you to leverage your current superannuation assets, it also provides the added benefits of both asset protection and tax efficiency:

Asset Protection:

Subject to the specific anti-avoidance rules in legislation such as the Corporations Act and the Bankruptcy Act, acquiring and accumulating assets in a superannuation fund can protect those assets from commercial and litigation risks that may otherwise face the members.

And since the Equiti Warrant structure allows for the title of the property to be held in your name as trustee (or in that of a trustee company that you control) any growth and future income may be enjoyed in a safe, secure and Bankruptcy Act friendly environment.

Tax Efficiency:

The current Australian taxation laws offer significant tax benefits for acquiring growth assets in superannuation:

    • There is a maximum of 10% capital gains tax on the sale of your property if it is held for at least 12 months in the accumulation phase and ZERO capital gains tax if you sell your property in the pension phase;
    • There is a maximum of 15% tax on any rental income received during the accumulation phase and 0% tax for rental income received in the pension phase;
    • By salary sacrificing into your SMSF, you effectively receive a 100% tax deduction at your full marginal rate of tax on contributions made up to your contributions cap (note: salary sacrificed contribution may be subject to up to 15% tax);
    • The interest expense along with other property related expenses including any depreciation allowance become 100% tax deductible within the superannuation fund and may potentially reduce your 15% contribution tax amount to nil;
    • It is much more tax effective than simply ‘negative gearing’ as, after your 15% contribution tax, you can use your tax deductible contributions to make both principal and interest repayments (by using your pre-tax dollars to make principal repayments, you can own your property sooner by having the tax-man helping you to pay it off);
    • You may potentially receive a more tax effective retirement income compared to property investment held outside of superannuation as once you are over the age of 60, there is ZERO TAX on withdrawals and pension income from your superannuation;
    • Your SMSF, as the beneficial owner of the property asset, enjoys the Land Tax Free Threshold in each Australian State.

Currently, legislation limits the amount which a member can invest in superannuation annually. By borrowing, the superannuation fund is in a position to increase the value of the assets it holds. All future growth will be within a superannuation environment where the taxes will be at a maximum of 15% and can potentially be zero.

Provided the terms are compliant not only with the provisions of section 67 (4A) but also with the other SIS investment principles, the lender to the superannuation fund may include the member/s themselves. Thus, a person may be able to loan into their superannuation fund what they are not normally able to contribute.

Up until the recent changes in SIS, many superannuation portfolios were devoid of the many potential benefits of direct property investment due to their inability to borrow money.

As a result, many Australians have had no choice but to invest in real estate outside of the tax-efficient superannuation domain and had lacked the ability for their superannuation portfolio to potentially generate greater returns through a geared SMSF investment strategy.

Determine Whether This Strategy Is Right For You

First and foremost, as the current (or future) trustee of your SMSF, you need to decide whether or not a geared investment strategy into residential or commercial property is an appropriate investment strategy for your superannuation fund.

Equiti Warrants may be suitable for investors that:

    • have a positive medium to long-term view of the property market;
    • have ensured that a residential or commercial real estate gearing strategy is consistent with their SMSF’s investment strategy and with each of the individual members risk profile;
    • are satisfied that they would still be able to maintain an appropriate level of investment diversification within their superannuation fund;
    • are interested in the prospect of building long term wealth within a tax efficient environment;
    • would like to acquire real estate assets in an asset protected and Bankruptcy friendly environment;
    • have approximately 30% or more of the desired property value in a self managed superannuation fund to cover the initial deposit, property acquisition costs and establishment fees;
    • would like to avoid exposing their other superannuation assets to the various risks associated with gearing strategies and are comforted by a limited recourse loan between their SMSF and the borrowing entity.

As always, it is important that a person consider an investment decision in light of their own personal objectives, needs and financial situation and it is advisable that a person seek the help of a qualified and authorised financial advisor prior to making an investment decision of any kind.

With the Equiti Warrant Trust, you no longer need to wait for your superannuation fund to grow to the full purchase price of your desired property and miss out on many years of potential capital growth.

Use your current SMSF (or a newly established SMSF) to acquire real estate assets and begin building your own direct superannuation property portfolio in preparation for a wealthier retirement.

Download the Equiti Warrant Trust Application form

Download the SMSF Application form

Download the Trustee Company Application form