SMSFs and business ownership
28 May 2015
SMSFs are often for business assets. The AFR looks at the possibilities. It is, of course, important to get specialist advice, but there may be distinct advantages:
"If you run your own business and own the property from which you operate the business, you could think about changing the ownership of that property from yourself to your superannuation fund. Under super law, you generally can't transfer your own assets to a super fund. But if that asset is a commercial property, it is allowed. Even better, if you were in a situation where you don't use all of the property yourself but lease some – or all – of it to someone else, you can still transfer it. The requirement is that the entire property is used for business purposes, which rules out transferring residential investment properties.
As an added benefit, if you transfer the property in the right way you could possibly reduce – in some cases eliminate – any potential capital gains tax liability. And if you were to wait to do the transfer until after July 1, when the government has proposed to reduce taxes on small businesses, any remaining capital gain would be taxed at a lower rate.
And finally, you would be required to enter a lease arrangement with your SMSF to rent the property back on commercial terms, but you could claim a tax deduction in your business for the rent, and it would be assessed at only 15 per cent tax within the SMSF – likely to be a lower tax rate than that at which you claim the tax deduction.
But getting it right is important, so you would need to seek specialist advice before acting."
The key, as the article points out, is the conversion of the business into a retirement asset. Shifting from retaining earnings and re-investing, to providing a living income. It is a difficult shift:
"Many small-business owners view their business as their future retirement plan. Profit made is often invested back into the business. Employees are paid wages and super, but the business owner often doesn't pay themselves a significant wage, or therefore super. Or if the business is operated as a sole trader, there is no compulsion to pay any superannuation. There might be the possibility as a sole trader to make voluntary contributions to super and claim a tax deduction for those, but the sole trader is often questioning whether that money should be used for other purposes.
The dilemma with this approach is that if you invest all your money back into the business, you need to ensure that you can extract your value back at the end of the day – in retirement, when you need it. For many this might not be an issue and they could have sound succession plans in place. You could continue to own the business, but no longer work in it. You might bring on a partner and look to transfer ownership over a period of time to protect the brand you have built. But the risk in waiting until the end is that you might not find someone willing to pay you what you believe the business is worth. So if you can start putting some of your own super savings aside, you can give yourself some form of safety net for the future."