How can a self managed super fund pay my business rent?

Sunshine Coast business owners tell us that the rising cost of rent is quickly eating into their profits. We understand that you can’t manage without your premises. But what if that rent could fund your retirement instead?

Owning your commercial property through a self managed super fund (SMSF) can be a game-changer. Although you’d still be paying rent, it would be going into your own retirement fund rather than into someone else’s pocket.

How will my SMSF help me optimise my tax

Let’s take you through a case study for one of our trade and construction clients:

• A Kunda Park plumber was leasing a warehouse for $3,200 a month

• Which meant $38,400 a year was going to his landlord and off the bottom line of his business

• He reached out to ABA to manage his tax affairs, and we presented him with a range of options that would increase his profit and improve his cash flow

• One of these measures was establishing an SMSF

• After consulting his financial advisor, he asked ABA to set up a self managed super fund

• Then organised a loan and purchased a warehouse for his business in his SMSF

• He hasn’t changed the amount of rent he’s paying, but now that money is going straight into his retirement fund

This is exactly how many of our clients help build future wealth, without even changing their monthly outgoings. The value of their asset is growing, and it’s legally geared toward their retirement!

What are the tax rules for SMSFs and property

• There are tax benefits from owning an investment property in an SMSF:

• Rental income is taxed at 15% and at 0% in the retirement phase. Note that rental income must be market-related (you cannot under- or overcharge rent to related parties)

• Capital gains tax on properties that are held for over 12 months are only taxed at 10%, and at 0% in the pension phase

• Expenses like the following are fully deductible:

o   management fees

o   rates

o   insurance

o   tax

o   repairs (but not capital improvements)

o   interest on loans if you have a LRBA (limited recourse borrowing arrangements)

• You may be able to make tax-free withdrawals from your fund once you retire

• Your SMSF assets are generally protected from creditors

This delivers a significant advantage compared to personal income tax rates of up to 47%, and company tax rates of 30%. Over time, these savings can really add up.

What’s the catch?

SMSFs may not be the answer for everyone. They come with strict compliance rules, reporting obligations, and need to be set up properly to ensure they meet the sole purpose test: providing retirement benefits. You can read our brief article about SMSFs and the risks and responsibilities involved. Or, delve into more detail with the ATO’s comprehensive guide to SMSFs.

Who can help me set up a self managed super fund to pay my business rent?

This is where the right accounting support matters. We partner with small business owners every day. Understanding their unique goals and financial pain points, before we help structure their finances the smart way. Bringing financial clarity and prosperity in the short term, and for the future.

Our specialist superannuation accountants in Birtinya know the process inside and out, making your SMSF set-up smooth and stress-free. They’ll explain the process, your obligations and answer your questions before managing your SMSF registration with the ATO. Once we have ATO approval, you’re ready to start your investment journey.

Our team of tax accountants will also manage the ongoing tax compliance and administration of your SMSF. We’ll maintain your accounting and member records and prepare your annual financial statements. As well as coordinating your fund audits and managing your SMSF paperwork so that nothing falls through the cracks.

You’ve worked so hard to build your business. Now let your rent help build your retirement too. Ready to explore a tax-effective SMSF strategy tailored just for you? Contact ABA today and let’s talk about the next steps.

Important notes:

ABA Advice Beyond Accounting are not financial advisers and cannot offer financial or investment advice on your superannuation fund or SMSF investments. ABA always recommend you seek investment advice from a licensed Financial Adviser and can recommend a Sunshine Coast financial adviser if you don’t already have one.

Likewise, if you’re looking for loan to purchase an investment property using your SMSF, we can recommend a lending specialist if you don’t already have one