Any small business owner is certainly concerned about how to be in total control of his or her business operations, as well as protect the business and minimize the costs. For such an owner of a small business, self-managed super funds will be of great benefit. SMSFs give small business owners greater control, value and many other benefits from their superannuation. As a matter of fact, there are over 400,000 SMSFs in existence today. The value of investments they hold is nearing the $350 billion. This shows how much popularity they have gained over the years. Small businesses should not be left out of the bandwagon due to the many benefits that may be available to them.
Means to own the business premises
A great strategy that small business owners can make use of is transferring the business premises to their SMSFs. This can be done so as to acquire various benefits, such as security of tenancy, asset protection, tax effectiveness and succession planning. In states such as Western Australia, Queensland, New South Wales and South Australia Victoria, this may entitle the small business owner to receive stamp duty concessions.
When the business is held in an SMSF, it is required to pay a commercial rent to the SMSF. The fund then only pays concessional tax on the rent. It also benefits from many of the tax breaks available to landlords. In case of bankruptcy, the business premises are protected from trustees.
Wide investment choice
Through SMSFs, members gain access to a wide array of investment options, some of which are not available to many commercial super funds. They enable members to hold unlisted shares, direct property, artwork, collectibles and other exotic investments.
Purchase of assets previously not affordable
Assets such as direct property may be beyond the reach of a small business owner. An SMSF allows a maximum of four people to pool their super savings. A small business owner can establish an SMSF and as a result be able to purchase expensive assets. Under a Limited Recourse Borrowing Arrangement (LRBA), an SMSF can borrow money to purchase an asset. Gearing is usually not exercisable in large commercial super funds.
Cost cutting is an important component of efficiently running a small business. It can be achieved through an SMSF particularly if the fund has large balance. The main cost for an SMSF is the annual administration costs which are relatively fixed. The average cost of administration for an average fund ranges from $2,000 to $2,500 per annum. On the contrary, commercial super funds charge a percentage of one’s fund balances, usually ranging from 1% to 2 % per annum. If a fund has $300,000 and the annual administration cost required is $2,000, this would translate to 0.66% per annum. This is very cost effective in comparison to commercial super funds.
An SMSF that invests directly is not liable for fees based on percentage of its investments.
A major benefit that an SMSF can bring to a small business is control of taxes. Through internal structuring or strategic investment planning, an SMSF can reduce taxes significantly. In some cases, taxes can be completely eliminated and refunds paid by the ATO. Capital gains tax for instance can be managed or eliminated through the minimization of the sale of assets such as shares and real estate until the fund begins to pay a pension. This is due to the fact that capital gains tax is not payable as soon as an asset backs the payment of a pension. There is also flexibility in dealing with the fund’s tax liabilities. This is because the fund does only one tax return despite it having two or more members.
SMSFs enable small business owners to attain a better estate planning outcome as compared to large super funds. They can craft strategies with extraordinary tax efficiency so as to leave tax-advantaged or even tax-free income streams to their beneficiaries. Unlike commercial super funds which have to be updated on a regular basis, SMSFs can make binding nominations that do not expire.
An Australian small business stands to gain a lot from an SMSF. It is however of great importance that the members acquire some investment skills and knowledge of the laws and rules that apply to SMSFs. They can also consider seeking professional advice.