4 benefits of self-managed super funds for small business owners
Some people view self-managed super fund (SMSF) as time-consuming and challenging to manage. As a small business owner, however, the benefits may outweigh the cons. Having an SMSF enables you to invest in assets such as commercial property within your private super fund, which provides numerous ongoing benefits and increases the value of your super fund. Even more so, if your organisation operates from the same commercial property.
While setting up an SMSF is a major decision which requires ongoing compliance by the trustees of the fund, it has many advantages for a business over time. Here are four key benefits of having a SMSF for small business owners.
- Reduced capital gains tax. One of the primary benefits of an SMSF for small business owners is the ability to have their commercial premises in their fund. While superannuation law prevents an individual from transferring their residential property to a fund, this does not apply to commercial property. Transferring commercial property – such as business offices and buildings – to an SMSF can also reduce capital gains tax. Likewise, if you ever decide to sell the commercial property held in your SMSF, you will also pay a heavily reduced capital gains tax amount on the sale of the property. This not only reduces the additional costs in selling the property but adds an incredible financial boost to the super fund as well.
- Tax deductions for business expenses. Once a commercial property has been transferred to the SMSF, the business owner will need to enter a lease agreement with the fund to rent the property on commercial terms. However, this also offers a tax deduction for the business, as any rent paid toward using the property can be claimed as a business expense. As the fund owns the property as an investment, it can also claim expenses such as repairs and maintenance costs, renovations and improvements to the property, and property management fees. Your fund will also be able to claim these expenses later, should you choose to sell your business but keep the property in your SMSF.
- Tax deductions for money earned by the fund. Any earnings on investments held in an SMSF are taxed at 15 per cent, which also applies to commercial property. In this instance, the commercial property is seen as an investment by the fund, and any money earned in relation to the investment – such as rent - will be taxed at the standard rate. For business owners, this means that they can claim a tax deduction for the business on the rent paid to the SMSF, and the fund itself will only pay 15 per cent tax on the amount. This allows a business to make significant tax deductions while making equally significant contributions to its retirement fund.
- Ongoing income in retirement. While your SMSF will grow considerably over time through rent payments, when it comes time to retire and sell-on the business to another party, you can benefit in two ways. If you choose to sell the property entirely, you will benefit from paying reduced capital gains tax on the sale. Otherwise, if you choose to keep the property, your SMSF will continue to grow through rental payments, and pay 15 per cent tax on the earnings while claiming expenses as a major investment.
An SMSF is not suitable for everybody or every business. However, in the right circumstances, using an SMSF can help a small business manage its commercial property while growing a retirement fund, providing ongoing business tax deductions and reduced tax on any amount earned by the fund.
About Helen Baker
Helen Baker is a financial adviser, author, speaker and spokesperson for online finance information platform Money.com.au. Helen has a passion for empowering Aussies to find financial freedom through strategic planning and goals-based financial advice. She has worked as a qualified financial adviser since 2009 and was a finalist in both the Financial Planner/Advisor of the Year and Women’s Community Program of the Year categories in 2017 as well. For more information, visit Money.com.au.