Purchase of PropertyPurchase of Property

Assume:-Assume:- $100,000 In Super$100,000 In Super Property:-Property:- 2 Bedroom 2 Bedroom Apartments - NewApartments - New

$80,000 Salary$80,000 Salary $290,000 Average Price$290,000 Average PriceAge 40Age 40 $330 Per Week Rental$330 Per Week Rental

$400 Strata Levies Per $400 Strata Levies Per QuarterQuarter

Total Purchase Price Including Stamp DutyTotal Purchase Price Including Stamp Duty $300,000$300,000

Deposit Ex Super FundDeposit Ex Super Fund $100,000$100,000

Non-Recourse Loan (70% L.V.R.)Non-Recourse Loan (70% L.V.R.) $200,000$200,000

Holding Period Holding Period (Reflected in Super Fund)(Reflected in Super Fund)

Rental Income ($330 x 52 wks)Rental Income ($330 x 52 wks) 17,00017,000

Costs & DeductionsCosts & Deductions

Interest ($200,000 x 6%)Interest ($200,000 x 6%) 12,00012,000Strata, Council, Water, etc.Strata, Council, Water, etc. 2,0002,000Depreciation, Building Allowance,Depreciation, Building Allowance, etc (Non-Cash)etc (Non-Cash) 9,000 9,000 23,00023,000

Negative Gearing AmountNegative Gearing Amount $( 6,000) $( 6,000)

Contributions To Superannuation Contributions To Superannuation FundFund

9% Levy x $80,000 = $7,0009% Levy x $80,000 = $7,000(Optional to S.M.S.F. or Industry Fund)(Optional to S.M.S.F. or Industry Fund)

Assume elected to industry fund, therefore a future buffer for cash flow anomalies that may arise.Assume elected to industry fund, therefore a future buffer for cash flow anomalies that may arise.

Salary or Profit Sacrifice – Say to Match Gearing LossSalary or Profit Sacrifice – Say to Match Gearing Loss

AmountAmount 6,000 6,000Negative Gearing LossNegative Gearing Loss (6,000) (6,000)

NIL NIL - No Contribution Tax- No Contribution Tax

Salary Tax Savings $6,000 x 40% - Say $2,500Salary Tax Savings $6,000 x 40% - Say $2,500

Cash Surplus in Fund – Non-Cash deductions i.e. $9,000 (Cash Surplus $3,000 + Contribution Cash Surplus in Fund – Non-Cash deductions i.e. $9,000 (Cash Surplus $3,000 + Contribution $6,000) $6,000)

(Can be used to pay down principal loan)(Can be used to pay down principal loan)

Therefore:-Therefore:-

A tax deduction is achieved for the principal reduction of the bank loanA tax deduction is achieved for the principal reduction of the bank loan

Sale of PropertySale of Property(Reflected in Superannuation (Reflected in Superannuation Fund)Fund)

Sale PriceSale Price 350,000350,000

CostCost 300,000300,000

Capital GainCapital Gain $50,000$50,000

Taxed at 10%Taxed at 10%

Depending on Age and Position of Fund, May be Nil TaxDepending on Age and Position of Fund, May be Nil Tax

Therefore:-Therefore:-

The process delivers a property that actually costs 2/3 of the purchase price The process delivers a property that actually costs 2/3 of the purchase price purely on the differential in the tax rates of the entities used in the process.purely on the differential in the tax rates of the entities used in the process.