This is part 2 of a series on Self Managed Superannuation. Click here for part 1.
Robert’s income is $120,000 pa, so his marginal tax rate (incl. Medicare) is 38.5%. He’s interested to know the relative impact of directing $10,000 pa of pre-tax earnings to reducing the principle of a non-super borrowing arrangement compared to a super borrowing arrangement, over a five year period.
Robert assumes interest rates of 6.5% pa (non-super) and 7.0% pa (super), and monthly loan repayments.
After five years, the non-super borrowing arrangement loan outstanding will be reduced by $37,292, whereas the super borrowing arrangement loan outstanding will be reduced by $52,303.
So Robert’s SMSF will be $15,011 better off with the super debt reduction arrangement than a borrowing arrangement in his own name.
Whilst this strategy works for Robert, it may not be suitable for everyone, it is therefore important to ensure you seek expert advice before investing.
Source: Macquarie Bank Limited, Self Managed Super Funds: A guide to super borrowing, September 2012
