Structure your way to success
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This webinar provides strategies for property investors to minimize taxes and maximize wealth through proper structuring. Tony Lee from Lee & Lee Accountants discusses the top 5 tax strategies, how to determine the optimal ownership structure, and investing in property through a self-managed superannuation fund (SMSF). The webinar includes a case study of a couple who can benefit from an SMSF to develop a duplex and build their superannuation balances.
Structure your way to success
- 1. Master Class: StructureYourWay to Success With David Hows - Real Estate Investar Tony Lee – Lee & Lee Accountants
- 2. We help investors build and manage their property portfolios
- 4. Real Estate Investar’s tools
- 5. Master class webinars • Designed to share knowledge. • Desire to provide extra value to our clients. • Great for both new and experienced investors. • Plenty of opportunity for Q&A. • We will run these regularly throughout the year, and sometimes involve our partners to provide additional insight.
- 6. Poll Question How many investment properties do you own?
- 7. Structure Your Way to Success Connecting the Dots Together
- 8. Meet the presenterTony Lee Founder and Director of Lee & Lee Property tax, investment and business structuring expert with 20 years experience in helping small business owner and property investors structure and protect their business and investment assets effectively, minimise their tax obligations and build wealth. He has invested in property himself which means he has faced the same issues that property investors and developers can face. As a result, his team has firsthand experience and an excellent understanding of finance, strategies, structuring, planning and timing when it comes to property investment.
- 9. One key message for tonight: “It’s NOT about what you make… it’s about WHAT YOU KEEP!” If you do nothing, you will most likely end up paying more tax than you need
- 10. Who Is this webinar for Small business owners, property investors and developers who; Want to plan to minimise your tax Want the best way to structure the ownership of your investments and protect your assets Want to invest in property with your superannuation fund and learn the benefits and risks involved in buying property with an SMSF
- 11. What you will learn tonight Top 5 strategies to maximise your tax The keys to minimising your tax legally 7 key steps to determine the right structure for your property investments and developments How to invest in property with your superannuation fund and learn the benefits and risks involved in buying property with your super in an SMSF; How to build a property portfolio with your super and pay little or no tax in retirement
- 12. What you will receive tonight At the end of tonight’s webinar, all attendees can download: eReport “Must know tax tips for property investors The opportunity for a FREE 15-30 minute one- on-one consultation
- 13. 5 Top tips 5 Top tips for property investors Depreciation Write off – Scrapping schedule, renovation, ATO will pay for your scrap on fixture & fittings Tax variation Prepayment of interest & seminar, travel expenses Fully write off on borrowing cost for refinance 5 Top Tips for SMSF You got to have one, Like a tax haven, Control & flexibility Insurance Borrowing (leverage) & residential property Superannuation is a trust structure NOT an investment
- 14. There are THREE ways to lower your tax To put more of every dollar in your pocket instead of the ATOs! Negative Gearing – Tax deduction for interest on income earning investments. Negative gearing is arguably the most generous tax break available to Australian property investors. Dividend imputation – Refund of tax paid by companies on profits paid as dividends SUPERANNUATION – Tax deduction for contributions, low tax on investment earnings
- 15. Poll question Does your current structure minimise tax and protect your assets?
- 16. Case study – Jack & Rose Jointly owns 4 investment properties both making $85K & $60K per year Background: • Happily married couple with no children • Both healthy and fit • Own their PPR with 50% equity and good saving history • Want to purchase their first 4 investment properties • Both combined annual income of $145,000 and can save $500 per week • Want to use the equity from their PPR to build and create wealth through real estate
- 17. Case study – Jack & Rose Goals and Objectives: • Minimise their personal tax • Access to negative gearing and tax benefit • Not too concern about asset protection • Start building and create wealth • Paying down home loan quickly • Land tax exemption • Easy finance and borrowing • Keep it simple and easy to maintain • Not too complex Solution: • Buy in personal names (Jointly)
- 18. Case study – Jack & Rose Jack owns 4 investment properties Jack without investment property $85,164 PAYG earnings ($38,855) Rental deductions ($22,602) Depreciation & borrowing expenses $20,872 Tax withheld $43,982 Taxable income $ 6,303 Tax Payable incl. Medical & Flood levy $14,568 Tax Refund/Savings Tax Paid 7.40% Tax Savings 17.60% (Before 25%, Extra Monthly Cash flow $1,214 $85,164 PAYG earnings ($ 0) NO Rental deductions ($ 0) Depreciation & borrowing expenses $20,872 Tax withheld $85,164 Taxable income $20,094 Tax Payable $777.55 Tax Refund/Savings Tax paid 23.59% Tax Savings 1.41% Prognosis
- 19. Lee & Lee developments Holland Park project © 2010 Lee & Lee Accountants
- 20. Lee & Lee Developments • Bought land $337K • DA,BA, Reno Costs $129K • Construction 2 Duplex (SUD) $330K • Council fees, Contributions, & Finance, Interests, GST $183K Total Development Costs $979K • Re-value of project $1.5M (3 properties) • Nett Equity/Profit $521K © 2010 Lee & Lee Accountants
- 21. A Property Trust A Property Development Company Pty Ltd Why is this the recommended structure for the Lee & Lee? What can be achieved under this structure: Asset Protection – Protection of all private family assets, including family home in the event of litigation or personal bankruptcy; Tax Minimisation & Flexibility - Maximum flexibility in determining and distributing taxable profits and capital gains to family member, other loss trusts so that ultimately the minimum amount of tax is paid Succession Planning – Maximum options and minimal CGT/stamp duty when the property is transferred to the next generation
- 22. Dream Retirement Lifestyle Be Comfortable FREEDOM $1.5M Passive Income How Would Your Retirement Lifestyle Be Different? Living The Dreams Feel Safe & Secure
- 23. $1.5M in Retirement! Retirement is a journey, not a destination
- 24. 2040 Financially independent 2013 Private schooling for the 3 kids 2025 France for 6 months Financial road map 2020 Mortgage Free 2030 Holiday House at Gold Coast
- 25. Aussie Hugh now needs to decide how he intends to get there, by when, how much it will cost and what risk he is prepared to take 1 in 100 chance of an accident 18 Hours $200 + petrol + accommodation 1 in 20,000 chance of an accident 2 Hours 20 minutes $300 1 in 1,417 chance of an accident 83 to 100 Hours 1 in 50,000 chance of an accident 25 Hours $392
- 26. AUSSIE HUGH (40) now needs to decide how he intends to get there, by when, how much it will cost and what risk he is prepared to take. Retirement with $100,000 in today’s dollars lasting until 100 years old Retirement age 75 Growth Cost & Return Risk over 1 to 2 year Passive income required…
- 27. “Why Structuring?” First financial battle Making the money Second financial battle Keeping the money
- 28. Interesting statistic “97% of all millionaires made their money in real estate…but 79% of those individuals lost their wealth because they didn’t structure their investment properties correctly” Fortune Magazine © 2010 Lee & Lee Accountants
- 29. Where does your money go? Your income © 2014 Lee & Lee Accountants Tax 47% You 53%
- 30. Where does your money go? Your Income © 2014 Lee & Lee Accountants Tax 30% You 70%
- 31. Where does your money go? Your income © 2014 Lee & Lee Accountants You 85% Tax 15%
- 32. Where does your money go? Your income © 2014 Lee & Lee Accountants You 100%
- 33. WRITTEN PLANUNWRITTEN PLAN 5 Secrets of success Purpose, Passion, Planning, People & Persistence © 2010 Lee & Lee Accountants Fun Concern Experience Invest in property & developments Fun Success! Poor structure, unexpected expenses, bad JVs, business scams, ATO audit Business booming, making lots of money Bankruptcy, Divorce, Broke, Jail GoodTimesNotSoGoodTimes BA
- 34. Financial success plan Property Investment & Development Plan Taxation PlanDebt Plan Get Financially Organised Asset Protection Plan & Structures Goals & ObjectiveSuperannuation & Retirement Plan Estate & Risk Plan Business Plan © 2014 Lee & Lee Accountants
- 35. Executable plan & strategy Investment Property 1 Investment Property 2 Primary Place of Residence Investment Property 3 Net wages Tax Super Start (optimise) $2M (now) $16M (Total freedom)$8M$4M Saving & investing (growing) Goal accomplished © 2014 Lee & Lee Accountants Investment Property 4 Set Goal Create plan STICK TO Plan Property Tax & finance Family super Risk & education Personal development Structure OWNERSHIP STRUCTURE COMPANY & TRUST & SMSF
- 36. Commonly used tax structures • Individual (Up to 45%) (Plus Medicare levy / temporary flood levy) • Partnership • Company • Trust (Different types of trust) • SMSF (It’s a structure not an investment) Give super a go Trust Distributes to Individual, Trust & Company Company Pty Ltd 30% © 2014 Lee & Lee Accountants SMSF Earning 15% Capital Gains 10% Pension Phase 0%
- 37. Keys to determine the right structure © 2014 Lee & Lee Accountants Asset protection 1 Limited liability protection Tax minimisation Flexibility Total control & privacy Succession planning Effectiveness Finance & land tax Complexity & costs 2 3 4 5 6 7 What is the correct structure for your personal situation? 7
- 38. Master plan for your wealth A Trust A Company P/L ABC B Trust B Company P/L ABC C Trust C Company P/L ABC D Trust D Company P/L ABC E Trust E Company P/L ABC PROFIT Distribution PROFIT TAX LOSS PROFIT TAX LOSS PROFIT PROFIT Distribution © 2014 Lee & Lee Accountants
- 39. Master plan for your wealth Phase 1 Phase 2 Master Trust A Master Company Bare Trust Trustee Company Super Fund SMSF Company IP Phase 3 © 2010 Lee & Lee Accountants
- 40. Lee & Lee developments Annerley Project “B”
- 41. Lee & Lee developments • Bought land $1M • DA,BA, other costs $37K • Construction 5 townhouses & House renovation $1.12M • Council fees, contributions, & finance, interest, GST, Strata & contingency $258K Total development Costs $2.4M • Re-value of project $3.2M (6 properties) • Net equity/profit $800K Annerley Project “B”
- 42. What was your real intention?
- 43. Consider Property investment & development Need to consider Income tax CGT GST Land tax Stamp duty
- 44. Property development agreement model Smart Property Developer Alan Property Holding Trust Alan Property Owner Company Pty Ltd © 2014 Lee & Lee Accountants Bruce Property Developer & Project Management Company Pty Ltd Charlie Investment Holding Trust Charlie Investor Company Pty Ltd Accountant Land Owner
- 45. A Property Trust A Property Development Company Pty Ltd Why is this the recommended structure for Adam and Eve? What can be achieved under this structure: Asset Protection – Protection of all private family assets, including family home, in the event of litigation or personal bankruptcy; Tax Minimisation & Flexibility - Maximum flexibility in determining and distributing taxable profits and capital gains to family member, other loss trusts so that ultimately the minimum amount of tax is paid Succession Planning – Maximum options and minimal CGT/stamp duty/Land tax when the property is transferred to the next generation
- 46. Commonly used tax structures Single developer with a JV partner © 2014 Lee & Lee Accountants ABC Property Development Company Pty Ltd A Property Development Company Pty Ltd B Property Development Company Pty Ltd A Family Trust B Family Trust ABC Unit Trust
- 47. Commonly used tax structures 2 family groups - JV deal © 2014 Lee & Lee Accountants A Property Development Company Pty Ltd B Property Development Company Pty Ltd B Family Trust A Family Trust
- 50. REMEMBER “It’s NOT about what you make… it’s about WHAT YOU KEEP!”
- 51. WHYDo you want to maximise how much of your income you keep, so you can confidently plan your retirement and save tax?
- 52. 7 Most Common Mistakes Depreciation Interest expenses Borrowing costs Discharge finance costs Land tax Travel & home office Capital gains/PPR 1 2 3 4 5 6 7
- 54. Poll question Are you interested in investing in property with a SMSF?
- 55. © 2014 Lee & Lee Accountants Tax differently Accumulation Phase 15% (Max ) Pension Phase 0% (Max )
- 56. Benefits of family super fund Full Flexibility & Leverage (Ability to Borrow) CONTROL Investment Choice Tax Effective Asset Protection
- 57. © 2014 Lee & Lee Accountants It’s tax free It’s works like magic It’s beautiful It’s controlled by you The magic of structure
- 58. How the SMSF borrowing structure strategy works Holding Trust (Legal Ownership) Corporate Trustee Holding Company Self Managed Super Fund SMSF SMSF Corporate Trustee Company Lender • Bank • Member or • Related Party Provides Security To Lender Lender Provides 65-80% Mortgage To SMSF Non recourse (LRBA) Rental Income Rental Expenses Including Depreciation Super Contributions Roll Overs Rental Income Declaration of Trust, Holds Legal Title while Borrowing Exists Legally owns the property (SMSF is sole beneficiary and has absolute entitlement to bare trust property) SMSF makes Loan Repayment What can be achieved under this structure: Owning an Income producing asset in the lowest tax environment Have ability to create greater after tax wealth More after tax dollars kept to reinvest or reduce debt Debt can be paid off faster before retire The faster a loan is repaid the less interest is charged and paid More saving and reinvesting for retirement for a better financial future
- 59. Poll question How much super do you currently have?
- 60. Background: • Happily married couple with 2 children • Both healthy and fit • Own their PPR with 75% equity and have automatic saving strategy • Have already got 5 investment properties worth $2 millions • Want to do their first duplex deal in Brisbane with buy and hold long term strategy • Both combined annual income of $200,000 from their successful consulting business • Both have combined superannuation balance of $300,000 • Want to use the equity from their PPR to build more wealth through property development • Already found a suitable site • Already have available equity to draw down • Already have finance approval for the development Case study three – Adam & Eve Owns 5 investment properties
- 61. Goals and Objectives: • Accelerate and fast track their wealth creation • Require control and asset protection is essential • Tax efficiency and flexibility with income & capital gains • Buy, develop and hold long term for capital growth Solution: • Buy in a company/trust structure (GST implications to consider) Case study three – Adam & Eve Owns 5 investment properties
- 62. Set up automatic savings © 2014 Lee & Lee Accountants j j Retirement 10% pay yourself first1 Emergency 5% 6-12 months expenses Dream holiday Pay off home Credit cards, bills, investments & charity…. 3 4 5 Income (MSI) Bank Account 2
- 63. Strategy #1 The Fast Tracker What can be achieved SMSF property borrowing strategy: Owning an income producing asset in the lowest tax structure in 10 years Creating $1,500,000 for retirement and have a peace of mind Automatic Savings Strategy
- 64. And you can tackle these problems.. © 2014 Lee & Lee Accountants • The need to support your family • Reinvesting back in your business • Pay too much tax • Saving for retirement to fund your lifestyle The biggest struggles everyone faces There is a to legally reduce taxes
- 65. Imagine yourself 20 years from now What are your goals & objectives? What’s the goal? E.g.$1.5M dream retirement You are here today… Freedom Gap
- 66. © 2010 Lee & Lee Accountants What’s your next step? We help you make smart financial decisions and connect the dots together and create a remarkable future!
- 67. Special REI client offer A complimentary 15-30 minute strategy session with Tony Lee on getting the right structure in place and taking control of your financial future. Using an SMSF property strategy can help reduce your tax and increase your wealth. Limited to ONLY 25 consultations First in best dressed! info.realestateinvestar.com.au/leeandlee
- 68. REMEMBER “It’s NOT about what you make… it’s about WHAT YOU KEEP!”
- 69. Q&A session Limited to ONLY 25 consultations info.realestateinvestar.com.au/leeandlee