Statistics suggest that half of all SMSFs in existence have at least one member who derives income from their business. Here are five reasons why small business owners should consider an SMSF.
(1) Business real property
Owning real property in an SMSF certainly has its advantages. Fortunately for business owners, business real property held in an SMSF is given a lot of flexibility with regard to who can use the property.
In particular, related parties of the fund (i.e. business owners) are able to:
- Use their SMSF to buy the business property; and
- Then lease the property back to their business.
This strategy is only allowed for real property that is used ‘wholly and exclusively in one or more businesses’ and may include an office, factory, medical surgery or warehouse, etc.
Quite apart from the tax benefits of holding the property in the SMSF (as to which, see below), this strategy allows a member to free up valuable working capital by utilising their superannuation to acquire their business premises.
2) Borrowing
If the SMSF does not, itself, have sufficient funds to acquire business real property, then it is possible for the SMSF to borrow the shortfall through a limited recourse borrowing arrangement (LRBA). An LRBA is one of the few borrowing arrangements that is allowed in an SMSF and is generally only available to SMSFs.
Borrowing accelerates the capital returns (as well as any losses) of the property.
(3) Tax
Superannuation is a concessionally taxed environment. As an added bonus, business owners who hold business real property in their SMSF can generally claim a tax deduction on rent paid to their SMSF.
When the property is ultimately sold, capital gains attract concessional, and in some cases, no tax depending on whether the SMSF member has commenced a pension.
4) Asset protection
The reality of running a business is that the owner’s personal assets are potentially exposed to creditor claims. However, assets held in an SMSF are, with a few exceptions, protected from creditors in bankruptcy.
(5) Control
Business owners are accustomed to making their own decisions. With an SMSF, the trustee/members call the shots, including making the investment decisions for the fund.
