The popularity of self-managed super funds continues to grow unabated as more Australians look for greater control of their financial destinies through reduced fees, greater liquidity and the opportunity to invest in a wider variety of long term asset classes, including property.
According to research firm CoreData, as at June this year there were 528,700 SMSFs, representing almost 32 per cent of Australia’s total $1.6 trillion super pool. Ten years ago there were only 271,000 DIY funds. Aside from their ability to help fund an independent retirement, SMSFs are increasingly recognised as an effective means for small business owners to add extra funds to their super nest egg, as well as manage commercial properties more tax efficiently.
If you are a small business owner then you are likely to be highly adept at quickly responding to the changing business environment and conditions. Most business owners’ guiding priority is to make money, make their assets work for them and create a more certain financial future. SMSFs are a good way to meet these goals.
SMSFs have six key benefits for small business owners.
- Holding a business property in your SMSF, subject to an arm’s length lease arrangement, is an excellent way of increasing your super balance.
- If you own an existing commercial property then, subject to relevant state government laws, you may be able to transfer that property into your SMSF with little to no stamp duty (less than $500).
- Potentially you will pay little to no capital gains tax when the property is sold (subject to qualifying for the small business tax concessions).
- You can lend money to your superannuation fund and this debt can then be changed into non-concessional contributions over time by forgiving the debt, although you need to ensure you do not exceed non-concessional contribution caps ($180,000 per annum or $540,000 over a three year period – a bring forward provision for the under 65s).
- There are no caps on how much you can lend to your super fund, providing the loan is at arm’s length and on a commercial basis.
- If you sell the business you can keep the building and use this as an income stream within your SMSF – the gift that keeps on giving.
There are various issues you will need to understand before holding a commercial property in an SMSF. For instance, while every loan to a super fund is a limited recourse loan, loan-to-value ratios are lower for commercial properties than their residential equivalent. Another point to consider is that any increased capital growth cannot be accessed in super. However other benefits include zero tax in pension stage and the ability to access the land tax threshold available to super funds.
An SMSF can be a great way for small business owners to boost their super fund balance above the normal contribution limits and become tax free in retirement, although any SMSF strategy should be based on sound independent financial advice.