Self-managed superannuation funds (SMSF) have offered business owners very flexible ways to reduce tax and grow their wealth for future retirement in a way that still suits their business requirements.
The sole purpose of a SMSF is to provide future retirement benefits for its members.
A SMSF must have less than 5 members which suits most small to medium business owners.
Whilst a SMSF is governed by strict rules under the Superannuation Industry Supervision Act (SIS), they are specifically allowed to do such things as:
1. Purchase business real property from a member or related party
2. Lease business real property to a member or related party
3. Purchase listed shares from a member or related party
4. Borrow to buy property under a limited recourse lending arrangement
Some small to medium business owners have previously acquired business premises to conduct their business and have contributed savings into their SMSF over many years. In some cases, the SMSF may have accumulated sufficient funds to purchase the business property from the business owner. The SMSF is able to pay cash for the business premises, which provides funds to the business owner who may be able to use these funds to pay-out any non-deductible home loan or provide additional working capital to expand the business or retire business debt.
Capital gains tax issues and stamp duty issues need to be considered in the decision of the SMSF to acquire business property from the business owner.
If the SMSF does not have sufficient cash to purchase the business premises outright it may be able to borrow the balance of funds required from a bank under a limited recourse borrowing arrangement.
Where the SMSF has acquired the business premises from the business owner, it can then lease the business premises back to the business owner at commercial rates.
The rent received from the business owner is another way of accumulating savings into the SMSF other than by concessional and non-concessional contributions. Another possible significant advantage is that the business property is held in the SMSF and is not sold for a capital gain until a future time when all members of the fund are in pension mode, so that any capital gain at that time becomes tax-free.
Now that there are caps on how much can be contributed to SMSF’s each year as concessional or non-concessional superannuation contributions, owning business property in a SMSF and receiving rent is another way of increasing savings into a SMSF for future retirement.
Owning and renting business property in a SMSF might be a solution to closing the Gap between what you have now and what you will need when you choose to retire!