Getting your head around the world of superannuation is not easy. Let’s face it, it isn’t the most fascinating topic and it is also a fairly complex space. However, this doesn’t make it any less important and planning your super has to be a priority for all SME owners.
I specialise in self-managed super funds (SMSF) and what many business owners don’t know is that a well structured SMSF can not only help you grow your business it can save you thousands in tax, all the while building your retirement.
Recently we’ve experienced a surge in inquiries from SMEs wanting to better understand how they can maximise their ability to purchase assets via SMSFs and this is mainly because of current market conditions. Buying property with your SMSF to help your business grow is smart and efficient but it’s important to understand how the assets can be used and when you can effectively access the capital that’s tied up.
There a number of ways people can use SMSFs to expand their business by buying the premises and then leasing it back. But if you choose to do this, it’s important to be aware that SMSFs require a certain level of commitment from trustees and it’s essential you receive expert advice from an experienced SMSF specialist to ensure your fund complies with the ATO’s tax regulations. In saying this, it’s also important to know that when used correctly, SMSFs can make, and save you, a lot of money.
The number of SMSFs has almost doubled in the past five years and the fallout from the global financial crisis has pushed people to take control of their super, especially as results from poor performing superannuation companies begin to emerge.
SMSFs are the fasted growing segment in the super industry. There are more than 2,500 new SMSFs being set up every month and ATO statistics show SMSFs have an average balance of $454,000. This number continues to rise mainly because people today want more control over their future. They’re fast becoming the investment tool of choice for people opting to take control of their super funds.
But while the SMSF industry grows there are still many misconceptions about what SMSFs can invest in so it pays to do your research and get expert advice. We often have clients tell us their financial advisors have either told them they can’t buy property for instance, or if they can, it must be income producing, or a particular type of property, and this is mainly because not enough advisors understand the legislation around this.
People choose to invest in property with a SMSF because of the number of tax concessions available to them. You can make use of the contribution caps to make some of the purchase price of your business freehold tax deductible. Combining a longer-term contribution and lease-back strategy allows business owners to use the differential in personal and super tax rates to help their business save tax and provide them with business premises while growing their retirement benefits and enjoying strong asset protection. Come retirement and commencement of pensions, the income generated in the fund attracts zero tax.
SMSFs can now borrow to buy assets, including the freehold in property providing further opportunities. The tax breaks are considerable, and are an incentive for people to use SMSF to purchase property.
But remember, the trustee is responsible for their SMSF. Regardless of what advice you’re given, trustees must realise the buck stops with them. If the ATO decides your fund is non-compliant it’s you who is responsible which is why it is vital you choose an expert administrator or accountant to advise you on your SMSF. There’s no point on saving admin fees each year to only lose half the assets in tax. Trustees who understand the rules and receive correct advice have nothing to fear from the ATO and there are a number of ways people can protect themselves against this happening.
First and foremost, it’s essential your advisor has the knowledge necessary to correctly advise you and ensure your SMSF is compliant. Look for a specialist who has accreditation in SMSF; this is an indication they’ve undertaken the necessary education and training, and importantly, have the experience to advise you in SMSFs. Are they well-known in their industry? Do they already look after a reasonable number of SMSFs? Find out about their background to ensure the experience is there.
Using your SMSF to invest in property is a smart and strategic move for businesses who are looking to grow. They take a little bit of commitment but once you’ve found an advisor who is up to speed with the industry regulations you will be amazed about how much money you can save and make for your retirement nest egg.
—Cindy McDonald is chief executive officer of Opez (www.opez.com.au) and has been in the self-managed super fund arena for almost 20 years.