SMSF bliss = business + property
Did you know that if your SMSF owns your business premises, there’s a range of benefits currently available to you?
- You can increase your business’ tax deductible contributions to your super fund in excess of the concessional limit by paying rent.
- The rent you pay to your super fund will increase the tax free superannuation available to you at retirement.
- The tax rate for super funds is flat 15%, which is significantly less than company and personal tax rates.
- The tax rate for super funds when you retire and start a pension is 0%.
- You effectively become your own landlord.
A great way many business owners are both super charging their superannuation balance and also increasing their net worth is by purchasing their business premises within their SMSF. The business then rents the premises from the SMSF, effectively delivering further returns.
The reason this can be such a great strategy as a business owner is due to the limit on ‘concessional’ superannuation contributions. Currently, if you are aged under 50 a tax deduction can be claimed by the business for the super contributed up to $30,000 per year, and $35,000 per year if you are aged over 50. However, if the business premises is owned by your own SMSF, you can increase your business’ tax deductible superannuation contributions by the market rent that your business pays to your SMSF.
Another great benefit of owning your business premises in your SMSF is that the tax rate for super funds is capped at 15%. This means that after allowing for all expenses including interest on the loan, you will be paying significantly less tax on the super fund’s net profit as opposed to a company and individual’s marginal tax rate. Furthermore, when you retire and start a pension from your SMSF, the tax rate for the super fund can be reduced to 0%, meaning no tax is payable.
Funding the purchase of the business premises can be done by using your existing superannuation balance and – as long as you have at least 20-30% deposit from your existing super – your SMSF should be able borrow the balance. There are strict rules around this including meeting lenders’ and the ATO requirements of having a limited recourse borrowing arrangement in place. The documentation can be arranged by a qualified financial services practitioner.
If you currently own your business premises, you may potentially be able to transfer the property into your SMSF with minimal stamp duty implications in NSW; however capital gains tax will be applicable and will need to be considered.
Please note that from 1/7/16, any advice from accountants or any individuals in relation to SMSFs must only be given by holders of an Australian financial services licence. The licence must be certified by ASIC that the licence holder has met the educational requirements to provide such advice.
George & Co. Accountants is located in Rosebery, NSW and we are one of the few accounting firms in Australia that has been granted our own independent financial planning licence. This allows us to provide unbiased and objective financial advice in relation to investment strategies for SMSFs.
If you think the above strategy may be of interest to you and would like to discuss whether it is appropriate, please feel free to contact Michael George on (02) 9662 8349 or firstname.lastname@example.org
DISCLAIMER: Please note that the above advice is only to be used a general financial advice as it does not take into account your personal circumstances and therefore may not be appropriate.