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The Reserve Bank’s latest cutting of the official cash rate is focusing the attention of property investors on how much they are paying in interest on their investment loans. Indeed, the latest cut and the varying responses of the lenders should prompt investors to make sure their loans are highly competitive.
First, you should understand exactly how much you are paying on your existing loan in interest rates and fees.
Upon request, your lender must provide you with a fact sheet setting out how much you are paying on your loan in dollar and interest rate terms. The fact sheet covers the total amount payable over the life of the loan (given the current variable rate), amount payable each month and ongoing fees. (See a sample loan fact sheet on ASIC’s consumer website, <a href="https://www.moneysmart.gov.au/" target="_blank">MoneySmart</a>.)
Armed with the fact sheet on your loan, you can then compare competing loans.
Mitchell Watson, a senior analyst with interest rate researcher Canstar, suggests that borrowers prepare a short list of what appear to be the most competitive loans.
Interest-rate researchers such as Canstar and  InfoChoice publish detailed tables of mortgage rates online.
Don’t just compare advertised rates but also the so-called comparison rates which incorporate the impact of up-front and ongoing charges (not all costs must be published), based on a 25-year, $150,000 loan.
Watson says the next step for property investors is to work out exactly how much they would pay in dollar terms each month and over the expected life of their borrowing for each of the competing loans on their short list. He points out that the mortgage calculators of the major banks provide a means for borrowers to compare the dollar cost of different loans from different providers. ASIC’s MoneySmart website also has a “mortgage switching calculator”.
 
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Of course, many investors rely heavily on mortgage brokers to hunt them down the best deals. Nevertheless, smart investors make sure they are as informed as possible about what is happening with interest rates.
If you are contemplating switching loans, carefully calculate the possible costs involved with this. Although the government has barred mortgage exit fees on loans written from July last year, lenders can still charge loan discharge and administration fees. With fixed-rate loans, break fees are payable and can vary significantly depending on how early the loan is being terminated and the size of the loan.
Watson also suggests borrowers check whether an application fee is payable on any new loan being considered. He suspects most lenders would be willing to waive their application fee to win your business.
Perhaps Watson’s most valuable piece of advice is that you should try to negotiate a lower rate with your existing lender. But first do your research of competing rates so you can strongly negotiate. 
“Existing lenders will look to retain your business because it is a lot cheaper for them to keep an existing customer than to attract a new customer,” says Watson.
Watson stresses that few borrowers pay the standard variable rate on their property loans. “The standard variable rate tends to be a benchmark rate which other products are discounted off.”
Craig Morgan, managing director of mortgage provider Independent Mortgage Planners, agrees with Watson that the starting point for getting a better deal is to try to negotiate with your existing lender. “If you don’t ask, you don’t get.”
He says borrowers should inform their existing lenders that they have researched competing rates and are thinking of taking their business elsewhere.
Morgan stresses that borrowers comparing competing loans should work out exactly what they are likely to pay in dollars given the size of their loan and the length of time the loan will be held.
Comparison interest rates can be misleading, he explains. This is mainly because the loan that an individual borrower is seeking may be much bigger and the likely time that the loan is likely to remain in place may be much shorter than the theoretical information used to calculate comparison rates. (As mentioned, comparison rates are based on 25-year, $150,000 loans.)
For more questions to ask as to how your residential property portfolio is performing, <a href="http://propertyobserver.com.au/ebooks/free-ebook-how-is-your-residential-property-portfolio-performing" target="_blank">download our free eBook.</a>
To find out <a href="/news">where residential property should sit within your portfolio, sign up for our free webinar on Thursday, November 29 at 12.30.</a>
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Are my financing arrangements as competitive as possible? Countdown 1 to Property Observer wealth-creation strategy webinar

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Small business specialist accountant Sue Prestney believes that many small business owners who had delayed their sales through the GFC and its aftermath will now put their businesses on the market. And she expects the bubble of baby boomers entering retirement to significantly increase the volume of businesses changing hands.
Prestney, a principal with accountants MGI in Melbourne, emphasises the tax and superannuation advantages that eligible small business owners have regarding the potential tax and superannuation for certain proceeds from the sale of their businesses.
First, the sellers can significantly reduce or eliminate tax on the sale of active business assets if eligible for small business CGT concessions. (See Strategy 1.)
Second, super contributions from the proceeds of small business assets that qualify for the CGT small business 15-year exemption or retirement exemption are excluded from the non-concessional contributions cap up to a lifetime limit of $1.255 million (for 2012-13). (See Strategy 2.)
Some vendors of small businesses go a step further and sell or contribute their business premises to their self-managed super fund to provide concessionally-taxed or tax-free retirement savings, depending upon their circumstances. (See Strategy 3.)
Prestney says the ability to make extra-large super contributions “really gives small business owners an advantage” over other super fund members. And she believes the latest halving of the cap on annual concessional contributions for members over 50 further accentuates this advantage. (From July this year, the annual concessional cap for all members is $25,000 – no matter their age.)
Superannuation auditor Chris Malkin points out that a small business vendor who is eligible for the special $1.255 million lifetime limit using proceeds from the sale could contribute a total of $1.43 million into super in 2012-13. (His calculations take into account the standard concessional and non-concessional contribution caps). This is compared to annual contribution limits totalling $175,000 for other members.
Malkin, consulting auditor of specialist superannuation auditor Baumgartner Superannuation in Melbourne, emphasises that eligible small business owners potentially benefit from the “double-whammy” of the CGT concessions and the extra-large limit on their contributions.
Here are five strategies or tips for sellers of small businesses to consider regarding their tax and superannuation advantages:
1. Check eligibility for small business CGT concessions
These CGT concessions – together with the 50% general CGT discount (applying to individuals and trusts) – often remove CGT on the sale of small business assets.
Only proceeds from the sale of so-called “active” business assets are eligible for small business CGT relief. (As Sydney tax lawyer Robert Richards, principal of Robert Richards &amp; Associates, explains in his column <a href="https://revcorplaw.com.au/active-assets/" rel="nofollow">Fiscal Thoughts</a>, “active” assets are basically those used or ready to use in the carrying out of the business. They include tangible and intangible assets such as goodwill.)
And a small business is only eligible for the small business CGT concessions if its turnover in the preceding financial year was under $2 million or the total value of the owner’s assets and those of “affiliates” do not exceed $6 million.
The net market value of the owners’ business assets, personal bank accounts, personal investment portfolios and personal investment properties – together with those of their business partners, spouses, children under 18 or any entitles or people under their control – are included in the $6 million asset threshold.
The four small business CGT concessions are:
<ul>
<li>The 15-year ownership exemption. If your business has owned the asset for 15 years and you are over 55 and retiring, no CGT is payable on any assessable capital gain. Prestney says small business owners do not have to apply for any of the other small business concessions if qualifying for this one because it wipes out the entire capital gain.</li>
<li>The 50% “active asset reduction”. This is a crucial and fundamental tax break – including for those continuing in another business. It halves the capital gain.</li>
<li>The small business retirement CGT exemption. A capital gain from the sale of a business asset is exempt from CGT up to a lifetime limit of $500,000 for each individual owner. For a couple, this would mean a $1 million exemption. If you are under 55, the exempt amount must be paid into super.</li>
<li>The small business CGT rollover relief. As Paul Banister, director of taxation services for accountants, Grant Thornton in Brisbane, writes in the Australian Financial Planning Handbook, published by Thomson Reuters, that this is a “last resort” following the sale of “active” small business assets that are being replaced by other active assets. CGT is postponed until the replacement assets are eventually sold.</li>
</ul>
2. Understand the opportunity for some small business owners to make extra-large super contributions
As discussed, super contributions from the proceeds of small business assets that qualify for the CGT small business 15-year exemption or the retirement exemption – see Strategy 1 – do not count towards the standard non-concessional contributions cap up to a lifetime limit of $1.255 million (for 2012-13). This cap is indexed.


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3. Consider holding your business premises in your self-managed fund
Some small business owners sell the trading side of their business to an external buyer and then contribute or sell their business premises at market value to their self-managed super fund.
Under superannuation law, business real estate – such as an office, shop or factory – is one of the few types of assets that super funds are allowed to acquire from members.
Once the assets of the fund begin to back the payment of a superannuation pension (including a transition-to-retirement pension), fund income and capital gains are tax-free. And after members turn 60, superannuation pension payments are no longer taxable.
If you are contributing the property to your self-managed fund as a non-cash contribution – perhaps it is jointly owned with your spouse who is also a member of your super fund – you should not overlook the annual superannuation contribution caps.
Significantly, Sue Prestney of MGI says business owners who sell or contribute their business premises to their self-managed super funds as a separate transaction should:
<ul>
<li>Check their eligibility for any of the small business CGT concessions on the transaction. She says the contribution of business premises to a self-managed super fund would qualify as a disposal for the purposes of the CGT concessions.</li>
<li>Check their eligibility for the small business super contribution lifetime limit of $1.255 million (for 2012-13), as discussed in Strategy 2.</li>
</ul>
Prestney urges business owners who are considering contributing or selling their business premises following the sale of the trading businesses to first get professional advice regarding the timing of the transaction. And she emphasises that stamp duty would be payable on the transfer.
As Prestney explains, some small business owners choose to sell their business premises to their self-managed super fund and then contribute the proceeds to the fund. And, where eligible, they make use of the small business CGT concessions and the special lifetime limit on contributions from the sale of certain small business assets.
4. Beware of the possible negatives of relying on rent from business premises to provide retirement income
Financial planners and superannuation specialists typically urge fund trustees to recognise the possible negative consequences if their retirement savings are heavily reliant on the profitability of a single, high-value asset. A broadly diversified investment portfolio spreads the risks and opportunities.
Prestney says a consideration for sellers of small businesses who are thinking about contributing the proceeds and/or business premises to a super is increasing concern that the government may reduce some of superannuation’s tax concessions. This has been widely discussed in the press during recent weeks.
“I have a theory that taxpayers should work with the best concession they can get at the time,” Prestney comments. But she urges business owners not to overlook the reality that governments sometimes cannot resist changing tax concessions – particularly in regard to super.
5. Decide well in advance how you will eventually sell your business to maximise the tax and retirement advantages
Prestney warns taxpayers not to assume they are entitled to the small business CGT concessions because they have a small business. She says that business owners should take professional advice at least a couple of years before a sale to see if any changes should be made to become eligible.
For instance, company shares in a small business may be regarded as “active” assets for the CGT concessions if the market value of all of the company’s active assets is at least 80% of its total value. Prestney says some restructuring of a company’s balance sheet may be necessary to become eligible for the concessions in such circumstances.
This article originally appeared on <a href="https://www.smartcompany.com.au/index.php" target="_blank">SmartCompany</a>.
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Five tax strategies for small business owners selling up

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Just because the law allows investors to do something doesn’t, of course, mean it is a good idea.

This investment adage comes to mind with the recent final ruling from the tax office – in its role as regulator of self-managed super – relating to the acquisition, maintenance and improvement of geared properties in a self-managed super fund (SMSF).
In short, the ruling – clarifying much of the uncertainty about the commissioner’s interpretation of the SMSF gearing laws – is likely to encourage many more SME owners to at least consider holding their business premises in their family super funds.
Property Observer discussed the ruling in detail on June 5, including in regard to the gearing of business premises built over several titles and the <a href="https://www.propertyobserver.com.au/finance/five-strategies-for-investing-in-geared-property-through-an-smsf/2012060655012" target="_blank">undertaking of improvements to business and other properties</a>.
Particularly given the new ruling, it is crucial for business owners to carefully weigh up the advantages and disadvantages of holding their business premises in their SMSFs – whether or not the properties are geared.
The advantages are clear.
Business real estate, such as the premises of a family SMSE, is among the few types of assets that SMSFs are allowed to acquire from their members and other related parties. And business real estate is one of the few types of assets that funds can lease to related parties – including fund members and their businesses – without a limit on its value.
Your business pays a commercial rent to your SMSF. The rent is tax-deductible to your business and your SMSF pays tax at no more than 15% on the rent.
If your fund has borrowed to buy the business premises, the interest is tax-deductible.
Unrivalled asset protection is another advantage. If you later experience financial difficulties, superannuation assets (including business premises) are generally out of the reach of creditors if individual fund members are declared bankrupt – subject to the claw-back provisions in the Bankruptcy Act.
Further, no capital gains tax (CGT) is payable if your fund eventually sells the property when the fund’s assets are backing the payment of a superannuation pension.Bu
Some business owners, however, would tend to concentrate only on the advantages of acquiring their business premises through their SMSFs without giving sufficient attention to the possible disadvantages.
Here are six tough questions to ask yourself:
<h3>1. What happens if my business experiences financial difficulties?</h3>
Family SMSFs sometimes face the difficulty of having a financially-troubled family business – owned by the fund’s members – unable to pay the rent for fund-owned business premises.
Under superannuation law, fund trustees (who are the members themselves) must operate their super fund for the sole purpose of providing member retirement benefits. And that means pursuing a tenant for unpaid rent – even if that wayward tenant is the members’ own business.
“It can become very difficult because you are then wearing two hats,” says Martin Murden, a director of Partners Group, a financial services provider to accountants.
“You are the landlord in the superannuation fund and then you are the tenant, being a director of the business which is facing difficulties,” he adds.
“I have seen businesses, which have fallen into financially difficulties, not paying the true amount of rent to the super fund,” says Murden, the author of How to invest in property through your self managed super fund (released by Major Street Publishing).
These super funds had breached superannuation law by providing financial assistance to a related party.
The tax office, as regulator of self-managed super, has the power to strip an SMSF of its complying status.
In turn, the market value of a non-complying fund is taxed at the top marginal rate, less any non-concessional or undeducted contributions. This can remove almost half of a fund’s assets in tax, depending upon the circumstances.
And if your business cannot pay proper rent on a fund-owned business premises, your SMSF may have trouble meeting loan repayments if the property is geared. (See question four.)
<h3>2. What happens if I divorce?</h3>
Husband-and-wife business partners often arrange for their SMSF to acquire their business premises. The sad reality is that a marriage break-up will typically destroy the business partnership – in addition to the closure of the couple’s SMSF when their personal financial links are severed.
Frequently in such instances, the business premises are sold – perhaps in an unfavourable market – in order to split the super savings.
Of course, some husband-and-wife SMSFs would have sufficient other assets to enable one spouse to keep the property in his or her super fund and for other fund-held assets to go into the super account of the other spouse.
Couples who are considering acquiring the premises for their family businesses through their self-managed funds should keep in mind that the possibility that their relationship may fail is far from remote. Figures from the Australian Bureau of Statistics (ABS) suggest that 40% of marriages will end in divorce – a statistic that doesn’t include de facto relationships.
“Trying to disentangle superannuation assets [in a property settlement] can become very difficult,” says Murden.
He points out the need to split an SMSF’s assets such as business premises following a marriage breakdown do not solely involve husband-and-wife funds.
For instance, business partners may have set up an SMSF together to acquire their business premises. And the failure of the marriage or de facto relationship of one of the partners may trigger the splitting of superannuation assets.
In other words, the super savings of both business partners may be affected even though both may have been married to spouses with no involvement in the business.
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<h3>3. What if a member of my SMSF unexpectedly dies?</h3>
Depending upon the circumstances, the death of a fund member may force the sale of fund-owned business premises.
Under superannuation law, a fund must payout the superannuation death benefits of a deceased member to his or her beneficiaries. And funds often have to sell assets such as property to pay the death benefits.
The forced sale of business premises may, in turn, damage the commercial prospects of the family business.
Of course, the beneficiary of a deceased member’s super is often a surviving spouse who is also a member of the same SMSF. In such cases, there is perhaps no need to sell the business premises to pay death benefits.
Murden says some SMSFs deal with risk of having to pay death benefits by taking insurance policies on the life of each member.
A fund’s trustees would arrange for their SMSF to setup a special reserve account to pay the premiums on the life insurance policies. And the beneficiary of any payout upon death or permanent disability would be the SMSF through its special reserve account.
Under superannuation law, fund trustees must have an investment strategy that has regard to such matters as the risk of making an investment, the risks of inadequate diversification, and the liquidity of investments. Liquidity is a key issue when it is time to pay death benefits.
<h3>4. What if my SMSF defaults on a loan to buy my business premises?</h3>
The lender could sell the property in attempt to recover its debt (including any outstanding interest) along with the costs of selling the property and discharging the mortgage. Whatever is left is repaid to the fund.
Particularly if the property has fallen in value, the fund could lose capital and interest paid to the date of the default.
Sydney tax and superannuation lawyer Robert Richards suspects that some SMSFs will have difficulty making loan repayments after the halving from the concessional contributions cap for members over 50 to $25,000 a year from July. (Concessional contributions comprise salary-sacrificed and compulsory contributions as well as personally-deductible contributions by the self-employed and eligible investors.)
Craig Morgan, a director of mortgage broker SMSF Loans, points out that SMSFs tend to keep their loan-to-valuation ratio for commercial property to a maximum of 55%. With most of the loans Morgan arranges, the rent at least covers the interest payments.
 
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<h3>5. What are my possible CGT obligations when selling or contributing my business premises to my SMSF?</h3>
The increased value of the business premises during your personal ownership may be subject to capital gains tax (CGT) upon the transfer of its ownership – whether by sale or contribution – to your self-managed fund.
However, the small business CGT concessions on the sale of active assets of a business (such as its business premises) together with the standard CGT discount for assets owned for at least 12 months may eliminate any CGT – depending upon the circumstances. Get specialist tax advice on this point.
You should also be aware that some states apply stamp duty when a property owned by a member is contributed to a super fund.
“You may be eligible for the small business CGT concessions,” says Murden, “but speak to your tax adviser before doing a single thing. Get it wrong and you are going to pay a lot of tax.”
<h3>6. Are my retirement investments adequately diversified?</h3>
One of the negatives about owning your business premises in your SMSF is that your fund may have insufficient other assets to adequately diversify its portfolio against risks and to take advantage of non-property investment opportunities.
If a fund is poorly diversified, the retirement savings of the members depend on whether the property turns out to be a good investment. Of course, much will rely on the members’ personal circumstances including their other super and non-super investments.
This article originally appeared on <a href="https://www.smartcompany.com.au/index.php" target="_blank">SmartCompany</a>.
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Divorce, death, debt and default: Six questions SMSF trustees should be asking

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Those with DIY super should now be more confident for their self-managed super funds to borrow to acquire their business premises and other investment properties – provided the assets measure up as quality investments.
This follows the recent release of a self-managed super fund final ruling providing a detailed explanation of the ATO’s interpretation of the SMSF borrowing rules in relation to the purchase, maintenance and improvement of geared assets.
Undoubtedly, many SME owners have been reluctant to gear an SMSF to acquire their business premises because of uncertainty about how the ATO, as regulator of self-managed super, may interpret the borrowing provisions in superannuation law.
The uncertainty – which largely arose after the tightening of the SMSF borrowing laws several years ago – mostly related to repairs and improvements to geared property, as well as the gearing of properties involving more than one title.
Countless SME owners have long favoured holding their business premises in their family self-managed funds. But it is understood that doubt about the ATO’s interpretation of the SMSF borrowing laws has deterred some from proceeding with the strategy.
Business real estate – such as the premises of a family SME – is among the few types of assets that SMSFs are permitted to acquire from their members and other related parties. Further, business real estate is one of the few types of assets that funds can lease to related parties – including fund members and their businesses – without a limit on its value.
SMSF trustees in general are likely to feel more comfortable about borrowing to invest in residential and commercial property now that the ATO has issued this final ruling.
While the final ruling largely confirms the main points made in a draft ruling issued in September last year, <a rel="nofollow" href="https://law.ato.gov.au/atolaw/view.htm?docid=SFR/SMSFR20121/NAT/ATO/00001&amp;PiT=99991231235958">there are some significant clarifications and additional examples</a>.
Here are five strategies for SMSFs that are considering gearing to buy property:
<h3>1. Don’t waste time on an unnecessary clash with ATO</h3>
The final ruling provides wide perimeters for SMSFs wanting to buy, maintain and improve a geared property without breaching the borrowing laws or upsetting the regulator.
In short, this gives SMSFs a solid base to work within without having a costly and time-wasting dispute with the regulator.
Meg Heffron, co-principal of SMSF administration group Heffron, won’t go as far as saying that the final ruling provides a definite rule book for SMSFs with geared property – “but we are probably a lot closer to it than we have ever been”.
As Heffron says, circumstances will inevitably arise with geared SMSF properties that are not covered in the final ruling.
<h3>2. Borrow to invest with more confidence</h3>
This is because the final ruling confirms that the regulator will provide SMSFs with a fair degree of freedom within the borrowing laws when carrying out repairs and improvements to geared property.
Heffron is convinced that the ruling will give SMSFs more confidence about borrowing to invest in property.
This marks quite a turnaround for the prospects of holding geared property in SMSFs.
Almost two years ago, amendments to superannuation law toughened the laws about borrowing to invest through a SMSF. After July 7, 2010, an SMSF could:
<ul>
<li>Only acquire a single asset – not multiple assets – under a borrowing arrangement.</li>
<li>Could only drawdown on a loan (entered into after July 7, 2010) to make repairs, not improvements to a geared property.</li>
<li>Could not make a capital improvement to a geared asset that was extensive enough to have created a new or replacement asset.</li>
</ul>
Heffron says her “gut reaction” to the ATO’s initial views on these amendments were that it would be almost impossible for an SMSF to borrow to buy property. And she had regarded the ATO’s interpretation at the time as “a ban by stealth” on future gearing of property in an SMSF.
But the release of the final ruling together with its earlier draft has confirmed how ATO has taken a much more pragmatic and much less restrictive approach.
It is taking a more realistic attitude about what is a geared single asset, the difference between repairs and improvements, and about the extent of improvements will lead to a new asset being created.
 
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<h3>3. Feel more assured about borrowing to invest in properties covering more than one title</h3>
This can be a key factor for SMSF property investors because many properties are on multiple titles.
Take the classic example of an apartment that has a car space on a separate title or a factory that happens to be built over several titles.
Following the 2010 amendments, ATO’s initial view was that a property with, say, two titles equated to two separate assets and could not be acquired under the one borrowing arrangement.
This meant that many properties were simply considered unsuitable for gearing through an SMSF.
But under the draft and final rulings, Heffron says the ATO takes a broad interpretation of what is a single asset. “The ATO takes the view that where the two cannot realistically be separated, they will be treated as a single asset for this purpose,” she explains.
In the ruling, the ATO gives the example of a factory that is built over three titles would be treated as single asset that could be acquired under a single borrowing arrangement.
And the ruling gives the example of an SMSF that wants to gear to buy an apartment and its car park, that are on separate titles on the same strata plan, yet state law specifies that the two cannot be registered separately.
Under the final ruling, the ATO regards the apartment and its car park as a single asset that can be acquired under the same borrowing arrangement.
<h3>4. Carry out quite extensive repairs to geared property</h3>
The final ruling clearly explains the ATO’s views in details about how far repairs can extend before reaching the point of becoming improvements. This is a vital distinction for gearing a property through an SMSF.
Martin Murden, a director of SMSF consulting for services provider to accountants Partners Group in Melbourne, suspects that uncertainty about the ATO’s initial interpretation of the difference between repairs and improvements had caused much concern among SMSFs.
“I believe people can now determine before proceeding [with repairs or improvements] whether their actions are going to result in a problem with super legislation and regulation,” he says.
Under the 2010 amendments, as discussed earlier, SMSFs could only drawdown on a loan to buy and maintain an asset – not to improve it.
This made the different between repairs and improvements even more crucial. And the question immediately arose: When does building work on a geared property reach the point of going beyond a repair to become an improvement?
“These issues will always be regarded as a matter of degree,” comments Heffron, “but the ATO clearly envisages quite a wide range of activities which might incidentally add to the value of the property falling into the ‘repairs’ category.”
“Replacing or rebuilding with ‘modern equivalent’ materials will generally be considered a repair or maintenance, but replacing or rebuilding with superior materials is potentially an improvement,” she explains.
Crucially, a fund can use its own money to improve a property – within limits discussed in Strategy Five.
<h3>5. Carry out improvements to a geared property with more confidence</h3>
The challenge for SMSFs is to know how much they can improve a property, such as the fund members’ business premises, without reaching the stage of creating a new asset.
If improvements to a geared asset lead to the creation of a new or replacement asset, the borrowing arrangement would have to be dissolved.
“The ATO originally took the view that improving a property will necessarily trigger the replacement of one asset [the unimproved property] with another asset [the improved property],” says Heffron.
“Like the draft ruling, the final ruling takes a far more liberal position and indicates that, in the ATO’s view, not all improvements will necessarily result in a replacement asset.
“Essentially, the ATO now draws a distinction between improvements that ‘fundamentally change the character of that asset’ and those that do not.”
The ruling gives examples of improvements that would not be regarded as replacing a geared asset. For instance, the addition of several bedrooms, granny flat, extra bathroom, a garage or a swimming pool would be regarded as improvements that do not lead to the creation of a new or replacement asset.
But the ATO ruling states a new asset would be created if, say, a residential house was converted into a restaurant with such changes as the inclusion of a “fully functioning” commercial kitchen.
This article originally appeared on <a href="https://www.smartcompany.com.au/index.php" target="_blank">SmartCompany</a>.
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Five strategies for investing in geared property through an SMSF

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Veteran retail property and business professional Duncan Johnston is taking a truly counter-intuitive approach to investment opportunities in shopping strips. There are “marvellous buying opportunities” for cashed-up investors such as self-managed super funds, he says. 
Johnston and his associates manage many retail and commercial properties on behalf of more than 150 self-managed super funds (SMSFs) administered by Accounting Solutions Victoria and its financial planning arm, Financial Solutions Victoria. 
In another role, <city>Johnston</city> is co-owner of a handful of Collins franchises including the Hill of Content bookshops in Melbourne and Sydney. 
As a tenant, he is making the most of the difficult retail market by negotiating cut-price rents for Collins franchisees. And as an investor, he is buying strip shops on the cheap for his SMSF clients. 
When Johnston heard that 38 shops on Oxford and William streets in Sydney’s Paddington were reportedly vacant, his reaction was blunt: “It’s a real opportunity for investors.”  
 
Often a number of his SMSF clients join together to buy more expensive properties. “We are looking at properties costing $1 million to $5 million.” 
Johnston says the keys to successful buying in this market include paying the right price for quality property, carefully choosing tenants that will draw in customers, and then looking after those tenants in such ways as offering rent holidays if trading gets tough. 
The selection of tenants is all-important. <city>Johnston</city> favours what he calls lifestyle tenants that include home furnishings, food supply, entertainment, books and restaurants. 
A series of interviews by Property Observer confirm that property analysts and investors have a mixed and somewhat cautious outlook for retail property as an investment. 
Some analysts are convinced that the gloom-and-doom commentary directed at retail is overstated, pointing to some better-performing retail sectors and shopping areas as well as the expectations that retail spending will eventually recover. 
And some property specialists believe that investors who select their properties and tenants with extreme care can pick up bargains in this market – provided the purchase price allows for the possibility of more bad news. 
Here’s what five retail experts are saying: 
Property hunt
Johnston recently bid $2.6 million for a strip shop in Victoria’s Werribee on behalf of eight SMSFs who would have each put in $325,000. Although he decided not to match the winning bid of $2.85 million, the shop typifies the property that SMSFs are hunting for. 
The Werribee shop, which is located on the city’s main thoroughfare, is occupied by an IGA franchisee on a 10-year lease. And <city>Johnston</city> knows the shopping strip well because SMSF clients own a Centrelink shop a block away. 
IGA-type grocery businesses really appeal to <city>Johnston</city> as tenants for his SMSF landlords. He believes that the “IGAs of this world have really come into their own” as shopping habits change. 
“The average spend in a supermarket has gone from $70 or $80 down to $20 or $30 because more people are shopping once a day or every two days. And they like to buy near where they live or work.” 
For instance, <city>Johnston</city> describes the inner-<city>Sydney</city> suburb of Balmain – where he co-owns the Hill of Content bookshop – as a “classic” example of a suburb that could accommodate a small IGA supermarket in addition to the existing Woolworths. 
Although Johnston says that despite retail’s current woes, “it will be always there for the long term”. 
Johnston adds that while retail landlords might have received low yields in the past and relied on capital growth, yields have now reached 7% or 8%. “And while landlords may not be getting capital growth in the short term, we can see it expanding in the long term.” 
 
<hr class="system-pagebreak">
 
Pessimism ‘overstated’
Leigh Warner, director for research and consulting with Jones Lang LaSalle, says that while retailers and landlords face challenges, the pessimism in some circumstances is overstated. 
“Retail turnover will recover,” Warner emphasises. While he believes that the aggressive credit growth experienced between 1997 and 2007 will not return, growth in population and real wages will justify an annual increase of about 5% in turnover over the next decade. 
“Spending growth is also likely to get a slight boost at some stage over the next few years as a cyclical recover in confidence sees the household savings rate fall from around 10% of household incomes to settle around 7%,” he adds. 
Although Jones Lang LaSalle’s research doesn’t include shopping strips – it tracks sales costing $5 million plus – Warner says his comments on the outlook for retail cover retail in general, not solely shopping centres. 
Warner believes that the retail yield spread – the difference between the retail yields and the 10-year bond rate – appears to suggest there is “pretty attractive buying” for investors. 
He says the yield spread for neighbourhood centres, for instance, is the biggest he has seen since the downturn of the early nineties. Jones Lang LaSalle calculates that the yield gap for neighbour centres stood at 685 basis points in March 2012 compared to 412 basis points at the market peak in late 2007. 
“It is very hard to finance a property that is regarded as secondary,” Warner points out. But for investors that could get finance, “we think in some instances, there will be some good returns made”. 
Warner says risk-averse investors have largely focused on dominant regional centres and quality CBD properties, leaving a potential opening for investors in secondary properties including neighbourhood centres. 
Interestingly, Warner says that astute buyers may find value in shops that have had little spent on their maintenance and improvement. “There is a very shallow buyer pool for these investments.” 
Warner adds that active investors and those taking professional advice may do well by bringing the shops up to a satisfactory standard. He emphasises, however, that investors should be confident about the property’s potential value and the suitability of an area’s demographics. 
High risk in hard-hit areas
Managing director of SQM Research Louis Christopher warns that any investor buying a strip shop in, say, <street>Oxford Street</street>, Paddington or in nearby <place><placename>Double</placename><placetype>Bay</placetype></place> would be taking a big bet. “There is considerable downside risk.” 
Christopher believes there are safer options in retail areas that aren’t as devastated. 
“But it’s all about price,” he says. “If you are going to buy into market right now, make sure the price you pay reflects what’s happening in the markets and the potential for further bad news and downgrades. 
“Tenants in <street>Oxford Street</street>, Paddington, are demanding substantial cuts. I am hearing demands for 30-40% cuts. The price needs to reflect that.” 
Christopher argues that <street>Oxford Street</street> can no longer blame its woes on Westfield Bondi Junction. He points to retail in another inner-eastern suburb, Potts Point which is potentially affected by <city>Westfield</city> yet is doing well. 
“<street>Oxford Street</street> is a physical mess; it’s difficult to park and hard for pedestrians to cross.” Further, many of the shops were upmarket and discretionary. “And rents are too high.” 
Nevertheless, Christopher says a “contrarian view” would be to buy a shop in <street>Oxford Street</street>. “It could be the point to re-enter retail. Do your homework. Understand the demographics, understand where rents are, and what turnovers are really like. And snoop on the ground, speaking to shopkeepers.” 
Well-located shops
Ross Horsley, research analyst for LandMark White, says that although retail spending is down, well-located properties will still earn satisfactory returns for landlords. 
And with yields rising as values fall, Horsley says there could be good buying opportunities including along shopping strips. 
Horsley suspects that a large number of for-rent and for-sale signs in a shopping strip may point to a chance for an investor to make an offer that may just be accepted. 
While Horsley doesn’t envisage that <street>Oxford Street</street> in Paddington will return to its peak from a retail perspective, he agrees the area is likely to improve when shoppers begin to spend again. 
Horsley says that despite weak consumer spending and high savings rates, well-located small shops, particularly in central business districts remain popular with SMSFs. 
Strong sectors
Tony Sherlock, senior property analyst for investment researcher Morningstar <country-region>Australia</country-region>, says there are few signs of an improving outlook for retail property. 
However, Sherlock writes in a new report – Retail – What’s in store? – that weak sales are not being experienced across all retail. He says the better-performing categories are consumer staples, pharmaceuticals, cosmetics, cafes, restaurants and supermarkets. 
“This is shown in recent sales statistics for supermarkets, up 3.7% on a 12-month moving average basis; liquor, up 7.1%; pharmaceutical, up 7.3%; and cafe/restaurants, up 4.2%.” 
Sherlock says this “bodes well” for owners of smaller neighbourhood and sub-regional malls.
For end-of-financial-year tax tips for property investors, <a target="_blank" href="/news">sign up for our free webinar on Wednesday, May 23 at 12.30pm</a>.
 
 
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Retail properties going ‘cheap’  and showing strong yields – but  take extreme care

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Some investment commentators would no doubt believe that investors who negatively gear new investment properties and shares at this time must have rocks in their head.
Residential property prices are still falling in most Australian states, and the highly volatile local share market returned a negative 6.8% in the 12 months to February.
And the Reserve Bank’s latest margin lending statistics underline the extreme reluctance of many investors to borrow to invest. Australia’s total margin lending debt, taken to gear shares, plummeted to $15 billion by December last year – the lowest level in eight years.
Just think that the margin lending debt is 64% down on the record $41.6 billion reached in December 2007 on the eve of the GFC.
Unquestionably, it would be a contrarian approach to negatively-gear your new investments. But given the depressed state of the residential property and the local sharemarket, a case could be mounted for going against the herd of investors who are cutting back on both their investment and personal borrowing.
Further, there is another powerful reason why some older, contrarian investors may decide to take bigger risks by negatively gearing their investments.
The standard annual cap on concessional superannuation contributions by members over 50 – mainly salary-sacrificed, compulsory, and deductible contributions by the self-employed – will halve to $25,000 from July. This will diminish valuable potential tax breaks for middle and higher-income earners.
And in turn, more investors are likely to consider gearing property and shares (outside super and through self-managed super funds) as a way to partly address this looming reduction in tax breaks.
The halving of these caps means that super fund members with a marginal tax rate of 46.5% will lose tax savings of up to $7875 a year from 2012-13 while those with a 38.5% marginal rate will lose up to $5875 a year. Much will depend on an investor’s circumstances.
Gear shares
Negatively geared shares provide a relatively straightforward way to help maximise tax and investment opportunities for investors that understand the greater risks involved. In short, gearing magnifies capital gains and losses.
A share is said to be negatively geared when the interest on the investment loan exceeds its dividend income – and the shortfall is deductible against the investor’s other income.
However, a phenomenon in this volatile sharemarket is that the dividend yields of some popular quality shares are markedly higher than the interest payable on investment loans once the value of franking credits are taken into account.
Ross Bird, head equity strategist for investment researcher Morningstar Australia, points out that the average forecast grossed-up yield (which includes franking credits) of the four big banks is 10.1% for 2011-12, rising to 10.8% for 2012-13. (The forecasts are by Morningstar analysts.)
And Morningstar’s forecast grossed-up yield for dividend champion Telstra is a breathtaking 12.4% for both 2011-12 and 2012-13. (The yield was even higher before the recent rise in Telstra’s share price.)
Yet investors should expect to pay a little more than 9% for a variable rate margin loan and about 8.25 to 9% for a fixed-rate loan (<a target="_blank" href="https://www.ratecity.com.au/margin-loans/low-rate">depending on the terms and conditions</a>).
This means that a geared portfolio comprising of, say, the big banks and Telstra won’t be negatively geared. It will be positively geared with the dividends easily outstripping the interest on a margin loan.
However, grossed-up dividends are unlikely to exceed interest on a loan to finance a properly diversified share portfolio – depending, of course, on the level of gearing. Bird gives the example of what Morningstar classifies as its “sustainable portfolio”.
This regularly updated portfolio currently comprises: QBE, Ramsay Health Care, Telstra, Westfield Group, Westpac, Seek, JB Hi-Fi, CSL, Computershare, Commonwealth Property Fund, Cochlear, Bendigo Bank and APA. The portfolio’s forecast grossed-up yield is 7.4% for 2011-12, rising to 7.8% for 2012-13.
Bird describes this portfolio as “almost self-funding” if geared. “The portfolio is designed for moderate capital growth with a healthy income stream,” he explains.
Key points to keep in mind that even if a portfolio is not negatively geared, interest on the investment loan is tax-deductible – and the investor is getting exposure to the sharemarket when shares are still relatively cheap.
Gear property
If you believe that prices are beginning to bottom out in your selected market, now might be a good time to begin thinking about gearing a residential property investment over the next few months or so.
As reported by Property Observer, <a target="_blank" href="https://www.propertyobserver.com.au/residential/residential-investment-property-capital-city-house-rental-yields-from-best-to-worst/2012013153198">RP Data-Rismark calculates that the indicative rental yield for all capital houses was 4.4% in January</a>. This compares to an average variable rate of 6.99% charged by the four big banks for what interest-rate researcher Canstar regards as “outstanding value” <a href="https://www.canstar.com.au/home-loans/compare/variable-rate-investment-home-loan">property investment loans</a>.
Louis Christopher, managing director of SQM Research, believes another rate cut would be necessary to mark the bottom of the Sydney and Melbourne markets where auction clearances are lower than last year’s levels. However, he suspects that the Perth residential market has either bottomed or is near to it.
In all, Christopher says it is “not a bad time” for investors to begin researching for their next residential investment.
Gear through a SMSF
Sydney tax lawyer Robert Richards says gearing an investment through a self-managed super fund (SMSF) is a way to expand a fund’s assets despite the looming cut to the standard concessional contributions cap for members over 50.
Under superannuation law, SMSFs can borrow to invest subject to strict provisions. The geared asset must be held in a special trust until the final payment of the loan, and lenders cannot make a claim against any other fund assets in the event of a default.
There is plenty to consider. On one side, an SMSF-held asset will produce much lower negative-gearing tax benefits than if the asset was in the name of a top marginal taxpayer.
But once the investment’s income exceeds the interest debt, the rental income is taxed at a maximum of 15%. And the eventual capital gains are taxed at just 10% (if the asset is not sold within 12 months of purchase) or CGT-free if sold when the asset is backing the payment of a superannuation pension.
Finally, no investor should gear an investment without being aware of the risks. As Richards says: “While gearing increases the opportunity for greater capital gains, it also exposes you to greater capital losses".
This article originally appeared on <a target="_blank" href="https://www.smartcompany.com.au/index.php">SmartCompany</a>.
 
 
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Is it time to negatively gear property or shares?

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<a href="https://www.propertyobserver.com.au/tax/smsf-gearing-versus-personal-gearing-in-residential-and-commercial-property/2012030753629" target="_blank">Yesterday </a>we looked at an example of personal gearing versus SMSF gearing.
Before gearing a property, it is advisable to ask your accountant and/or financial planner to do some projections to determine whether you may be best to gear in your own name or through your SMSF. 
Points to discuss with your professional adviser when working out your investment projections for an investment property include: 
1. How long should I expect the property to remain negatively geared? Factors to consider here include the size of deposit paid, expected capital repayments and expected rental yield. Higher-income earners in particular will reap much bigger negative-gearing tax benefits than a concessionally taxed super fund. But once the investment becomes positively geared, rent is subject to lower taxes if it is within a super fund. 
2. What is the likely capital growth of the property? The greater the capital growth, the greater the capital gains tax (CGT) savings if held in a super fund – particularly if the property is sold when backing a superannuation pension (when CGT no longer applies). 
3. What if the property’s value falls during my ownership? Paul Banister, tax partner of accountants Grant Thornton in Brisbane, stresses capital losses in an investor’s own name are more valuable to offset present and future personal capital gains than losses in a super fund. And once the property is backing the payment of a pension, capital losses have no value because the asset is no longer taxable. 
4. Should I maximise my concessional super contributions? The making of more concessional contributions within your annual contribution cap to help with the cashflow of a fund-held investment property can provide immediate tax breaks. 
Concessional super contributions are taxed at just 15% – not the usual marginal rates applying to your personal income. This means, for instance, a taxpayer with a 38.5% marginal rate receives an instant 23.5% tax break. (Concessional contributions comprise mainly salary-sacrificed, compulsory and tax-deductible contributions by the self-employed.) 
5. Is it realistic to aim to sell an SMSF-held property in the CGT-free pension phase? The answer depends on a range of factors including your age. A young investor, for instance, may be most unlikely to keep a property until nearing retirement (when eligible for a transition-to-retirement pension from age 55) or in retirement. 
Banister says when making a decision about whether to gear a property in super or in your own name “involves trade-offs”. 
While gearing in your name can provide more immediate tax subsidies from personal negative gearing, holding property in superannuation may produce, according to the circumstances, more tax benefits over the long-term including the possible elimination of CGT. Another issue is that it costs more to setup a gearing arrangement through a SMSF than in your own name.
 
 
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Five questions to ask when deciding between SMSF gearing and personal gearing in property

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Should I gear into property in my own name or through my self-managed super fund? Which is likely to produce the best after-tax returns in my circumstances? 
These are burning questions as the popularity of borrowing to invest in property through self-managed super funds (SMSFs) steadily increases despite the uncertain outlook for residential and commercial property. 
The latest Self-managed super fund statistical report, from the Australian Taxation Office, estimates that SMSFs hold $60.4 billion in geared and ungeared direct property – up from a relatively modest $41.5 billion three years earlier. 
And Craig Morgan, a director of mortgage broker SMSF Loans, reports a spike in inquiries about gearing property following the release in September of a detailed draft SMSF ruling about repairing and improving geared real estate. 
Mark Gleeson, technical services manager for advice and distribution with the financial services group OnePath, suspects that some investors automatically assume that gearing through concessionally taxed superannuation will inevitably produce the highest after-tax returns. 
However, Gleeson emphasises that much will depend on the circumstances. In some cases, super will produce the best returns yet the opposite is true in other cases. 
In a simplified case study prepared for Property Observer, Gleeson looks at the example of an investor with a 38.5% personal marginal tax rate who bought a residential property three years ago for $655,000. He took a $500,000 loan with a 7.5% interest rate. 
It is assumed that the property produced an annual rent of $30,000 and increased in value by $95,000 during the three-year ownership. Apart from the initial instalment or deposit, no other capital repayments were made. 
The length of ownership has been set at an unusually low three years to simply illustrate some of the key points to think about with a gearing strategy – without complicating the issue by considering changes to the time value of money. 
By holding the investment outside super rather than through his SMSF, this investor produces by far the best negative-gearing tax benefits – $5,005 a year ($15,015 over three years) against $1,950 a year ($5,850 over three years). 
But once both capital gains tax (CGT) and negative gearing are taken into account, the picture really changes. By holding the property in super and selling when the asset is backing the payment of a superannuation pension will produce by far the best overall results in these circumstances – a $5,850 total tax benefit over three years. (Superannuation assets supporting pension payments are not subject to CGT.) 
By contrast, the property would have produced negative returns (once CGT is counted) if the property were geared in super and sold during the accumulation phase or held in the investor’s name. 
“[In this case study] there is no significant difference in total tax benefits between holding the property outside super and inside super if selling in the accumulation phase,” says Gleeson. But he emphasises that the projected tax results will depend much on the assumptions used. 
NEGATIVE-GEARING BENEFITS
<table border="1" cellspacing="0" cellpadding="0"><tbody>
<tr>
<td valign="top">
 
</td>
<td valign="top">
Inside super
</td>
<td valign="top">
Outside super
</td>
</tr>
<tr>
<td valign="top">
Rental income
</td>
<td valign="top">
$30,000 pa
</td>
<td valign="top">
$30,000 pa
</td>
</tr>
<tr>
<td valign="top">
Less interest
</td>
<td valign="top">
$37,500 pa
</td>
<td valign="top">
$37,500 pa
</td>
</tr>
<tr>
<td valign="top">
Less rates and
Maintenance
</td>
<td valign="top">
$5500 pa
</td>
<td valign="top">
$5500 pa
</td>
</tr>
<tr>
<td valign="top">
Net loss
</td>
<td valign="top">
$13,000 pa
</td>
<td valign="top">
$13,000 pa
</td>
</tr>
<tr>
<td valign="top">
Annual tax benefit
</td>
<td valign="top">
$1950 pa
(15% x ($13,000)
</td>
<td valign="top">
$5005 pa
(38.5% x $13,000)
</td>
</tr>
</tbody></table>
CGT LIABILITIES
<table border="1" cellspacing="0" cellpadding="0" style="width: 470px;"><tbody>
<tr>
<td valign="top">
 
</td>
<td valign="top" width="247">
Inside super
</td>
<td valign="top" width="180">
Outside super
</td>
</tr>
<tr>
<td valign="top">
CGT cost base
</td>
<td valign="top" width="247">
$655,000
</td>
<td valign="top" width="180">
$655,000
</td>
</tr>
<tr>
<td valign="top">
Sales proceeds
</td>
<td valign="top" width="247">
$750,000
</td>
<td valign="top" width="180">
$750,000
</td>
</tr>
<tr>
<td valign="top">
Assessable capital gains
</td>
<td valign="top" width="247">
$63,333
(2/3 x $95,000*)
</td>
<td valign="top" width="180">
$47,500
(1/2 x $95,000*)
</td>
</tr>
<tr>
<td valign="top">
CGT
</td>
<td valign="top" width="247">
<ul>
<li>$9,500 (15% x $63,333)</li>
</ul>
in accumulation phase
<ul>
<li>Nil in pension phase</li>
</ul>
 
</td>
<td valign="top" width="180">
$18,288 (38.5% x $47,5000)
</td>
</tr>
</tbody></table>
* CGT discount because property not sold within 12 months of purchase.
 
 FINAL TAX POSITION
<table border="1" cellspacing="0" cellpadding="0" style="width: 470px;"><tbody>
<tr>
<td valign="top" width="127">
 
</td>
<td valign="top" width="204">
Inside super
(Sold in accumulation phase)
</td>
<td valign="top" width="180">
Inside super
(Sold in pension phase)
</td>
<td valign="top" width="132">
Outside super
</td>
</tr>
<tr>
<td valign="top" width="127">
Negatively geared tax benefit (three
(three years)
</td>
<td valign="top" width="204">
$,5850
</td>
<td valign="top" width="180">
$5,850
</td>
<td valign="top" width="132">
$15,015
</td>
</tr>
<tr>
<td valign="top" width="127">
Less CGT
</td>
<td valign="top" width="204">
$9,500
</td>
<td valign="top" width="180">
Nil
</td>
<td valign="top" width="132">
$18,288
</td>
</tr>
<tr>
<td valign="top" width="127">
Total tax benefit
</td>
<td valign="top" width="204">
Minus $3,650
</td>
<td valign="top" width="180">
$5,850
</td>
<td valign="top" width="132">
Minus $3,273
</td>
</tr>
</tbody></table>
Source: OnePath
Before gearing a property, it is advisable to ask your accountant and/or financial planner to do some projections to determine whether you may be best to gear in your own name or through your SMSF. <a href="https://www.propertyobserver.com.au/tax/five-questions-to-ask-when-deciding-between-smsf-gearing-and-personal-gearing-in-property/2012030853630" target="_blank">Tomorrow we will look at five things to consider before you decide</a>.
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SMSF gearing versus personal gearing in residential and commercial property

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When veteran Noosa real estate agent Peter Butt looks at the modest Sandpiper residential and retail block on the beachfront in <street><address>Hastings Street</address></street>, he becomes nostalgic about earlier days at the <state><place>Queensland</place></state> resort. 
Butt, co-principal of Richardson &amp; Wrench Noosa, first came to Noosa on holiday 33 years ago, staying in a cheap one-bedroom flat at the Sandpiper. He never returned home to the eastern suburbs of <city><place>Sydney</place></city>. 
“I looked at the emerald green sea for the first time and saw waves breaking at the point – I used to be a mad surfer – and said to myself, ‘My God, I’ve found the Garden of Eden’.” 
Butt didn’t stay in the cheapest accommodation in <street><address>Hastings Street</address></street>. That distinction belonged to the camping area and caravan park, known as The Woods. “You could stay in The Woods for $50 a week then,” he says. 
From a location viewpoint, The Woods was the best place to stay in town. It had a double waterfront with the ocean on one side and the river on the other. And you could dine out on a Betty’s Burger for a $1. 
Fast forward to the present. 
Even a street protest – surely a one-off for Noosa – failed to stop the bulldozing of The Woods in the ‘70s. And the old Sandpiper is about to be demolished.
<img src="/images/stories/sandpiper2.jpg"> 
From 2013, a <a href="https://www.rwnoosa.com.au/28609/">new Sandpiper</a> (pictured above) will occupy the prized site, comprising three luxury full-floor apartments and a boutique facing the street. Richardson &amp; Wrench <a href="https://www.propertyobserver.com.au/queensland/sale-of-%2414-million-apartments-as-tide-turns-for-better-in-noosa/2011072650927">sold the two lower units off the plan to one buyer in July</a> for $14 million. And the penthouse is for sale at $9.5 million – by far the most expensive property on its books.
 <img src="/images/stories/noosa2.jpg">
And this year, $50 will buy little more than a decent meal in <street><address>Hastings Street</address></street> but not even put a dent in your accommodation bill. The most expensive rent being collected by Richardson &amp; Wrench this Christmas is $19,500 a week for a<a href="https://www.rwnoosaholidays.com.au/noosa_accommodation_view.asp?holidayID=474" target="_blank"> four-bedroom beachfront house </a>(pictured above) in Belmore Terrace, Sunshine Beach. It’s an $8 milion to $10-million property.
Butt says that although each of the 260 holiday rentals on his books is let between December 23 and January 17, rents have been discounted this year. “And there are still some great deals either side of the Christmas period.” 
There goes the neighbourhood
When David Edwards, licensee of LJ Hooker Palm Beach, began to sell real estate in Palm Beach 25 years ago, he remembers a “thriving community where people lived full time. Along the commercial stretch of <street><address>Barrenjoey Road</address></street>, there was a butcher, barber, chemist and petrol station. 
“Now you have real estate agents, coffee shops and restaurants,” Edwards says with some regret. And the population has become much more transient. 
Despite the stratospheric rents paid for high-end <city><place>Palm Beach</place></city> properties, Edwards says that on the non-water side of <street><address>Barrenjoey Road</address></street> facing Pittwater, it is still possible to rent a place for $1,500 to $1,800 over Christmas. “But on the other side of the road, you can spend $13,000, $15,000 and $18,000 a week.” And for houses facing the ocean, the dollars just escalate.
 {yoogallery src=[images/stories/september16kalula]}
Kalua on <street><address>Ocean Road (pictured above) </address></street> holds the record for the top Christmas rent for <city><place>Palm Beach</place></city>, renting in past years for $38,000 to $45,000 a week to the likes of Nicole Kidman, James Murdoch and John Cleese. The plantation-style house, owned by businessman Ian Joye, is currently on LJ Hooker’s website for $40,000 a week. However, Edwards says the Joye family is actually staying there over Christmas, and he believes some rental may be involved over this period. 
For Christmas 2011, life is a little tougher in rental paradise. “Our top rental this year is $25,000,” says Edwards. “There are probably about 20 properties in the $25,000-plus category and we have secured rentals on less than a handful.” 
Average rents a week for <city><place>Palm Beach</place></city> this year are $6,000 to $7,000 – down from $8,000 to $9,000. It seems that both owners and tenants are being more careful with their money. 
“In previous years, the bookings were two weeks or longer,” says Edwards. “This year, one week seems to be the more favoured tenancy. 
“The owners are being more frugal, not travelling overseas as much and are using their residences at <city><place>Palm Beach</place></city>.” 
And at the top end, owners tend not to cut rents to meet the market. “These are wealthy clients who don’t need to lease,” Edwards emphasises. “Some say, ‘If I am not going to get a good rate, we’ll leave it empty or use it ourselves’.” 
Upmarket fibro
When letting agent and landlord Christine Lewis bought her fibro beach house 10 years ago, she set about to recreate the settings of her childhood holidays – albeit in a more upmarket way. 
Lewis, proprietor of <a href="https://www.lovemelovemydog.com.au/" target="_blank">www.lovemelovemydog.com.au</a> – a booking agency for pet-friendly beach houses and owner of a beachfront rental property – used to spend every Christmas from the mid-50s at her grandparents’ fibro cottage at Surfers Paradise. 
“My grandfather would pick me up from the station in his Ford Prefect [a model that hasn’t been made for 50 years].” Her grandparents have long died and their little house has been demolished “take make way for a flash development”. 
Although Lewis’s website lists 2,500 pet-friend properties throughout Australia, the heart of her business is unquestionably Culburra on the NSW south coast. Culburra properties on her books rent from $209 to $1,000 a night. And this Christmas, the most expensive house is renting for $7,000 a week.
<img src="/images/stories/lovedog.jpg">
Her own property, <a href="https://www.lovemelovemydog.com.au/rent/nsw/south-coast/culburra-beach/on-the-beach/">On the Beach</a>, is rented over Christmas for $4,500 a week. Not bad for a fibro house, even though it’s right on the beach, cost more than $1 million and has about everything that opens and closes – for dogs and humans. 
“It’s probably politically incorrect,” Lewis says. “But I am one of those 1950s babies who isn’t scared of fibro or bindis.” 
It seems that Culburra doesn’t attract the celebrities of the fame of Nicole Kidman or John Cleese. However a regular tenant is Dr Katrina Warren, the TV vet from Harry’s Practice. And in pet-friendly circles, that’s true celebrity. 
*Author’s note
Michael Laurence is a long-time observer of Australia’s beach culture, particularly at <city><place>Palm Beach</place></city>. He learned to ride a surfboard at Kiddies’ Corner on the northern end of the beach – across the road from the pricey  Kalua, stored his surfboard next door under Willeroon – the long demolished 1920s Ocean Road house then owned by the Forsyth family (owners of Dymocks bookshops), and once interviewed Billy Connolly as the comedian came in from the surf.  
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Agents look back on summers past with nostalgia for cheap beachfront property

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As we look to what's ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.
 
The massive wave of baby boomers nearing retirement and a sharp fall coastal property values make an often overlooked tax and investment strategy much more appealing. 
This innovative strategy involves typically middle-aged couples buying their next investment property based on two fundamental criteria: its potential returns and its potential as a future retirement home. 
The new property is treated strictly as a negatively geared investment property for up to 20 years or so until the owners are ready to sell their existing family home and move into it. 
Depending upon the circumstances, the breaks from income tax and capital gains tax can be outstanding – and, perhaps, unexpected. 
Tax adviser Gordon Cooper is convinced that investing in the property in your own name is likely to produce far superior after-tax benefits than pursuing an identical strategy through a self-managed super fund. 
Cooper, the principal of Cooper and Co in Sydney, believes the strategy of buying a future retirement home – initially as a geared investment – is extremely timely given the rapid ageing of the population. 
Louis Christopher, managing director of property adviser and forecaster SQM Research, says the fall in the prices of coastal houses – which may be suitable for future retirement homes – could create good buying opportunities. 
Christopher points out, for instance, that Gold Coast prices are down by 15% from a high in 2008 and prices on the NSW Central Coast are down by 12% from a peak in June last year. 
“It is probably time to research these properties,” he says, “but their prices could fall a bit more.” 
These are the four steps involved in this strategy: 
1. Borrow up to entire purchase price
Cooper says borrowers following the strategy would typically take an interest-only loan to finance the property, using their existing family home as loan security. This will help maximise their tax benefits. 
2. Claim negative-gearing tax breaks
The annual deductible shortfall between the rent and the costs of interest on the loan, maintenance, council and water rates, and insurance could eliminate much of the tax on your salary. As Cooper emphasises, salaries are often at their highest in the last decade before retirement, making the negatively gearing tax breaks highly rewarding. 
3. Minimise CGT
When you ultimately make the property your permanent home, it will gain the CGT-exempt status of your main residence. However given the property will not be your home for some years, you are likely to face a CGT bill upon its eventual sale. 
Fortunately, there is a smart way to minimise that CGT liability. 
Say you owned the property for five years before moving in and making it your home for another 15 years. Cooper explains that you would be liable for CGT on a quarter of the assessable capital gain. 
But now Cooper adds a twist that may surprise many property owners. 
“In calculating your CGT liability [upon the property’s eventual sale], you can subtract a proportion of the non-deductible expenses,” he says. 
You would have incurred these non-deductible expenses after the property ceased being used as an investment and had become your home. And such expenses would include council rates and interest on any outstanding mortgage. 
Cooper says that after taking into account these non-deductible expenses, you might actually end up with a capital loss.
4. Consider the SMSF alternative
Some investors arrange for their SMSF to buy their future retirement homes as geared investment properties as an alternative to gearing the property in their own names. 
The apparent attractions of this SMSF strategy are two-fold. First, your super fund is likely to have enough money to pay the deposit or first instalment on the property. Second, you could arrange for your fund to eventually transfer the property into your name as an in-specie (non-cash) pension payment. 
Your SMSF would not be liable for CGT upon the transfer of the property into your name provided: 
<ul>
<li>The property was backing the payment of a superannuation pension. (Fund assets supporting a pension are exempt from CGT and income tax.) </li>
</ul>
<ul>
<li>The transfer of the property into your name as a pension payment did not result in the full pension account balance being paid out. (Strictly speaking, the benefit is treated as a partial commutation to a lump sum.) </li>
</ul>
However, Cooper is convinced that high-income earners in particular would gain higher after-tax returns from negatively gearing the property in their own names rather than gearing through a SMSF. This is despite the fact that the property will not be subject to CGT if eventually transferred into your name as a non-cash pension payment. 
“I think it is very hard to see how the maths can work to show it is an advantage to gear through your SMSF rather than in your own name,” Cooper emphasises. 
For more on self-managed super funds,<a target="_blank" href="http://propertyobserver.com.au/ebooks/16-questions-self-managed-super-fund-trustees-should-ask-before-investing-in-property"> download our free eBook</a>.
 
 
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Sea-changing could be a huge tax savings

Queensland builder-developer MAYD has revealed the first look at its major North Kirra beachfront development, lodging amended plans that reduce the number of apartments and increase the proportion of larger residences.

The project is planned across a substantial 4,742 sqm amalgamated site spanning seven lots at <a href="https://www.apartments.com.au/new-apartments/2-6-pacific-parade-bilinga-qld-4225">2-6 Pacific Parade</a> and 27-33 Golden Four Drive in Bilin​ga, directly opposite Nor​th Kirra Beach.

<a href="https://www.apartments.com.au/developers/mayd-group">MAYD</a> secured the site for $32.5 million in 2025, in what was one of the Gold Coast's largest property transactions of the year.

The development will be delivered across two stages, with the first stage carrying an estimated gross realisation value of around $360 million.

The latest amendments seek to reduce the overall apartment count and shift the project further toward the owner-occupier market, with larger residences designed for buyers wanting considerably more space than traditionally offered in a beachfront apartment.

The residential mix will include townhomes, oversized two-bedroom apartments, substantial three-bedroom residences and four-bedroom homes.

MAYD has appointed Cera Stribley to lead the architecture and interiors, with the Melbourne-based design practice drawing on the beachfront setting through a series of ocean-facing terraces and heavily landscaped balconies.

Strong horizontal forms and curved balconies will define the exterior, with subtropical landscaping integrated throughout the building to soften the built form and increase the connection between the residences and the beachfront.

The project will also include an extensive collection of resident wellness and lifestyle facilities, continuing the broader shift across the Gold Coast's luxury apartment market toward larger homes supported by resort-style amenity.

<img alt="MAYD" data-entity-type="file" data-entity-uuid="d1bcbb05-e659-4b47-8bd4-1e595315e2ad" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%202.05.03%E2%80%AFPM.png?VersionId=jj0XEud1X1DuLt7_KyElhjMdZGOXmLHP" />

MAYD Founder Todd Mould said North Kirra was increasingly appealing to buyers attracted to the more established, lower-density character of the southern Gold Coast.

"North Kirra presents one of the most compelling luxury residential opportunities currently emerging in Australia, combining absolute beachfront with the character and authenticity that buyers are increasingly seeking, and the same sense of tight-knit community that defined Burleigh and Currumbin perhaps 10 or 15 years ago," Mould said.

"With Gold Coast Airport on its doorstep, it also offers a level of accessibility that broadens its appeal across almost every market demographic."

The project comes as the southern Gold Coast continues to attract an increasing share of high-end apartment development and buyer activity.

Kirra in particular has emerged as one of the region's more tightly held beachfront markets, with its relatively low-density character, established surf and hospitality scene and proximity to Gold Coast Airport differentiating it from the higher-density markets further north.

Mould said those characteristics had informed the approach MAYD and Cera Stribley had taken to the project.

"We've worked closely with Cera Stribley to create a vision that is deeply connected to its surroundings," he said.

"Inspired by the coastline itself, the architecture has been shaped around space, privacy and resort-style living, creating a collection of homes that reflects the next generation of luxury on the southern Gold Coast."

MOTIV Managing Director Carly Cottam, who has been appointed to market the project, said buyer attention had continued to move south along the Gold Coast.

"Purchasers who may once have defaulted to Broadbeach, Main Beach or Surfers Paradise are increasingly recognising the value of a genuine beachfront location that offers lower density, strong amenity and a more established sense of community," Cottam said.

"Kirra has a powerful combination of growing demand and genuine scarcity. Beachfront supply is inherently constrained, the area remains relatively low density, and buyers are increasingly placing a premium on locations that feel established, uncrowded and authentic rather than heavily developed."

Cottam said the proximity to Gold Coast Airport was also proving increasingly important for interstate and second-home buyers.

"Being minutes from Gold Coast Airport makes it particularly compelling for interstate buyers, frequent travellers and second-home purchasers who can access an authentic coastal lifestyle almost immediately after stepping off a flight."

The acquisition takes MAYD's active development portfolio to more than $500 million, with the North Kirra project representing one of its largest undertakings to date.

MAYD is targeting an early 2027 launch.

Joel Robinson

First look at MAYD's North Kirra mixed-use precinct

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Castle Hill, the longtime hub of the Hills District, has been one of the major beneficiaries of Sydney's Metro expansion, with improved connectivity helping drive continued population growth, development and buyer demand across the Hills District.

But despite that growth, the suburb has seen relatively few major new apartment projects brought to market over the past 18 months.

Hills District developer Reve Group is looking to fill that gap with <a href="https://www.apartments.com.au/new-apartments/nova-r-ve-castle-hill-2-garthowen-crescent-castle-hill-nsw-2154">Nova Rêve</a>, a major new mixed-use precinct on the corner of Garthowen Crescent and Old Castle Hill Road, a short walk from Castle Hill Metro Station and Castle Towers.

[smartcode_project:default project_id=152737 project_image_fid=377679]

The project will comprise three residential towers alongside a hotel, restaurants, cafes and a skybar, more than 1,600 sqm of ground-floor retail and almost an acre of landscaped gardens.

It represents the largest project undertaken by Reve Group, the development arm of the Kassis family, which has been building across the Hills District for more than 30 years through Kassis Homes.

[smartcode_project:default project_id=152737 project_image_fid=377675]

Nova Rêve also represents a significant step up from the family's first apartment development, Grand Rêve, which was delivered nearby on Garthowen Crescent.

Grand Rêve introduced larger, house-like apartment layouts and premium inclusions including Wolf and Sub-Zero appliances to the Castle Hill market.

Nova Rêve takes that approach to a precinct scale, combining the residential component with hospitality, retail and substantial public and resident landscaping.

[smartcode_project:default project_id=152737 project_image_fid=377685]

Reve Group Managing Director Sam Kassis said the project reflected the family's three decades of building in the Hills, which has evolved from trophy homes on quarter-acre blocks to larger-scale apartment development.

"Grand Rêve was our first apartment project here and it showed us what this pocket of Castle Hill could be. Nova Rêve is the refinement of that idea: not just apartments, but a place the whole suburb can use," Kassis said.

A key part of that approach is the hotel, which has been designed to operate as an amenity for the wider Castle Hill community rather than solely hotel guests.

It will include restaurants, cafes, skybars and all-day dining, alongside conference and event facilities catering to business functions, community groups and private events.

At ground level, more than 1,600 sqm of shops and cafes will open onto the surrounding streets and landscaped areas.

Almost an acre of gardens designed by Land and Form Studios will run through the precinct, incorporating pathways, seating, barbecue areas and children's play spaces.

[smartcode_project:default project_id=152737 project_image_fid=377680]

Reve Group's Romio Georges said creating an active ground plane had been central to the planning of Nova Rêve.

"There are gardens with pathways, barbecues, seating and play areas, shops and cafes opening onto the street, and a hotel with restaurants and a skybar that anyone in Castle Hill can walk into," Georges said.

The project's elevated position on one of Sydney's highest ridgelines will also provide apartments with outlooks toward the Sydney skyline, surrounding parkland and the Blue Mountains.

More than 80 per cent of the apartments will occupy corner positions, with Turner responsible for both the architecture and interiors.

&nbsp;

[smartcode_project_cta:default project_id=152737]

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Nova Rêve arrives as Reve Group bets on Castle Hill's next growth phase

A collection of just 25 large-format apartments and penthouses overlooking Goodwin Park is entering the Coolangatta market, with <a href="https://www.apartments.com.au/new-apartments/marea-residences-coolangatta-27-27a-dixon-street-coolangatta-qld-4225">Maréa Residences</a> combining a low-density, residential-only approach with uninterrupted park and Pacific Ocean outlooks.

Located at 27 Dixon Street, Maréa comprises three and four-bedroom residences alongside a limited number of dual-level penthouses, with the project positioned between Goodwin Park and <a href="https://www.apartments.com.au/developments/coolangatta-qld-4225">Coolangatta</a>’s coastal precinct.

Construction has commenced, with completion currently estimated for late 2027. Three-bedroom residences are priced from $1.8 million.

[smartcode_project:default project_id=150999 project_image_fid=374005]

The project has been designed around its northern outlook across the park, with the building’s architecture, landscaping and material palette intended to establish a connection with the neighbouring green space. The residences have been configured to maximise natural light and views across Goodwin Park towards the ocean.

Inside, the material palette incorporates timber, stone and brushed brass, complemented by curved detailing and ambient lighting. Kitchens and bathrooms carry the same natural material approach, while residences also include basement parking, storage and lift access.

Maréa’s penthouses are arranged over two levels and include private pools, adding another layer to the project’s focus on larger-format apartment living. Across the development, residences are configured with three or four bedrooms rather than the broader mix of smaller apartment types commonly found in larger projects.

[smartcode_project:default project_id=150999 project_image_fid=374010]

Resident amenity is concentrated at rooftop level, where landscaped entertaining terraces and pools take advantage of elevated views across Coolangatta and the Pacific Ocean.

The project has so far been particularly well received by local owner-occupiers and downsizers, according to Urban Activation Property Sales and Marketing Director Matt George, with the residential-only format, construction quality and northern park outlook among the features resonating with purchasers.

“The uninterrupted northern aspect overlooking Goodwin Park has been a key point of difference, with buyers attracted to the sense of serenity and open space the park provides, while still enjoying easy access to the ocean and being within walking distance of the lifestyle and amenities Coolangatta has to offer,” George said.

[smartcode_project:default project_id=150999 project_image_fid=374002]

“The combination of high-quality construction, a residential-only building, park outlook and proximity to the beach has resonated strongly with the local downsizer market.”

The Dixon Street address is within walking distance of Coolangatta Beach and the broader southern Gold Coast coastline, including the surf breaks at Snapper Rocks and Kirra. Coolangatta’s cafés, restaurants and retail are nearby, while Gold Coast Airport is also within close proximity.

[smartcode_project_cta:default project_id=150999]

Maréa Residences brings parkside apartments to Coolangatta

Melbourne developer PDG has secured Victorian Government approval for its $1.5 billion Southbank development <a href="https://www.apartments.com.au/new-apartments/the-one-1-queens-bridge-street-southbank-vic-3006">The One</a>, clearing the way for the long-dormant riverfront site opposite Crown to finally be developed.

The Minister for Planning has approved the project at 1-29 Queens Bridge Street, with the Department of Transport and Planning issuing the planning permit following its assessment.

The approval will allow PDG to develop the prominent 5,059 sqm site with a major mixed-use tower comprising premium apartments, including branded residences, a luxury hotel and boutique office space.

PDG acquired the site in late 2024, with its position directly opposite Crown's main entrance and near Melbourne's Arts Precinct making it one of Southbank's most significant remaining development opportunities.

<img alt="PDG" data-entity-type="file" data-entity-uuid="3933013e-6332-4386-b9be-089df05caf17" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.22%E2%80%AFAM.png?VersionId=sITIgBqDL0N3VNSMwWEmF5UA.uvcsRyu" />

Designed by COX in collaboration with ODO and PDG, the tower's architecture draws on the movement of the Yarra River, with six vertical pleats running the height of the sculpted facade.

The project will also see the heritage-listed Queens Bridge Hotel restored and incorporated into the development&nbsp;with new hospitality and public uses, including a rooftop venue.

A significant component of The One will be its residential amenity.

More than 5,000 sqm of resident facilities will be delivered across a single level, making it one of the largest consolidated residential amenity offerings proposed in an Australian apartment development.

The planning approval also incorporates a major upgrade of Queensbridge Square, which PDG will deliver in partnership with the City of Melbourne.

<img alt="PDG" data-entity-type="file" data-entity-uuid="73167fcd-1031-4b6f-a408-a064cfe45ed1" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-08-27%20at%209.29.17%E2%80%AFAM.png?VersionId=Pf1AEWxw6SNmBqR0zQW5lyEze.MtxgFp" />

The existing square will be revitalised as a new civic and pedestrian space along the Yarra River, strengthening the connection between the project, Southbank and the riverfront.

PDG Founder and Managing Director Vince Giuliano said the approval represented a major milestone for a site which has remained largely underutilised for more than 15 years.

“This is the most significant Planning Permit approval Melbourne has seen in recent years,” Giuliano said.

“For more than 15 years, this site has remained underutilised. This approval enables us to deliver a project that will contribute meaningfully to the revitalisation of Southbank, restore and reactivate an important heritage building, and create a new civic and hospitality destination for Melbourne.”

The latest approval follows an earlier planning permit issued by the City of Melbourne covering demolition works across part of the site at 9-29 Queens Bridge Street. Those demolition and early works are already underway.

PDG has also started generating early interest in the residential component from owner-occupiers ahead of a planned public launch in early 2027.

PDG secures approval for $1.5bn Southbank apartment development, The One

Local developer Harridan is seeking to turn its Woolloongabba apartment project into the first stage of a broader transformation of Burke Street, using a new 16-storey mixed-use building to establish a greener pedestrian connection toward the rapidly evolving Boggo Road transport and knowledge precinct.

The South East Queensland developer has filed plans for 154 apartments on the <a href="https://www.apartments.com.au/new-apartments/4-burke-street-woolloongabba-qld-4102">southern side of Burke Street</a>, where its proposal has been designed alongside a wider vision by LatStudios for the street.

That vision positions the southern side of Burke Street for buildings of 15 storeys and above, while envisaging lower-rise development of up to five storeys on the northern side to transition into Woolloongabba's existing character housing. It also proposes wider pedestrian verges, deep planting, new street trees and upgrades to the pedestrian approach to Boggo Road Station.

The Harridan development itself has been designed by Brisbane-based Arqus Design and will comprise 154 apartments across 16 storeys. The mix is weighted heavily toward two-bedroom apartments, with 121 proposed alongside 10 one-bedroom and 23 three-bedroom residences. There will typically be around 14 units per floor.

A lower-ground car park and three podium levels will accommodate 156 resident parking spaces, along with visitor and commercial parking. There will also be 154 resident bicycle spaces and 40 visitor bicycle parks.

&nbsp;

Harridan is a family-owned developer and part of the Holmwood Highgate Group, with more than three decades of development activity across South East Queensland. Its portfolio spans residential, commercial and industrial property, with current residential projects including Riverbank on Byron in Bulimba, Esperance Residences in Carina and The Precinct at Kinross Road in Thornlands.

Wooloongabba has been popular for apartment developers, particularly since the announcement of the 2032 Summer Olympics games in Brisbane.

While there have been a lot of development applications, it has failed to materialize into real supply.&nbsp;

Sarazin has been the major player in the area. They are under construction at Murcia Residences, on the fringe of East Brisbane and Woolloongabba. They have just launched <a href="https://www.apartments.com.au/new-apartments/the-stanley-residences-woolloongabba-8-trafalgar-street-woolloongabba-qld-4102">The Stanley Residences</a>, in Woolloongabba on Trafalagar Street. They also have Nuage coming soon on the nearby <a href="https://www.apartments.com.au/new-apartments/nuage-woolloongabba-14-wellington-road-woolloongabba-qld-4102">Wellington Road</a>.

Michael Laurence

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