Published as ‘The Mentor’ column in The Australian on 2 May 2017.
We are both in our mid-50s and are in the process of selling our restaurant business.
We also own the property which we’d like to keep.
We’ve put most of what we’ve made back in the business and so don’t have much set aside in super.
Should we be looking to put the property into super for our retirement?
If you, like many readers, have closely followed the changes to superannuation coming into effect from 1 July 2017, you may be feeling that the reduction to the amount you can contribute to super or the restriction to the amount you can transfer to a retirement pension may impact your ability to implement certain pre-retirement strategies.
With the right advice, however, this need not be the case as there are still numerous superannuation and pre-retirement strategies available to everyone, with some unique strategies only available to small business owners.
While many pre-retirement strategies don’t necessarily need to involve superannuation, many do for the simple reasons that superannuation still provides one of the most concessionally taxed retirement savings vehicle available.
To reflect the fact many small business owners have reinvested most of their surplus time and money into their businesses, small business owners may be able to access a number of capital gains tax concessions not available to individuals who simply hold passive assets for investment purposes.
In addition, small business owners may be able to make additional contributions to superannuation under a unique small business capital gains tax cap, which falls outside the more common concessional and non-concessional contribution limits.
While we are going to see a reduction in both the concessional and non-concessional contribution limits from 1 July 2017, there has been no change to the amounts which can be contributed to superannuation under the small business capital gains tax cap for eligible small business owners.
Following a deeper understanding of the business operations and the owner’s personal situation there may be an opportunity to make the most of these concessions, from both a tax concession and superannuation contribution point of view.
Keeping the property may prove beneficial for a number or reasons such as providing an additional source of income in retirement, primarily in the form of rent from the property.
There are also a number of strategies where you can purchase or hold direct property in a self-managed superannuation fund (SMSF) either outright or using borrowed money. Such strategies have been around for a number of years now, and assuming the property from which the business operated meets the superannuation definition of being business real property (broadly, commercial property) the property could be contributed to or sold to an established or new SMSF.
Keep in mind when choosing to run your own SMSF, although you may and indeed should seek assistance from professional advisers, the responsibility for the operations of your fund ultimately rest with you as trustee. Given the extra responsibilities involved SMSFs aren’t for everyone, although an SMSF may provide you with the opportunity to hold your property within the concessionally tax superannuation environment.
If you did want to move your property into super you will also need to take into account the relevant contribution limits available, or look to establish a strategy for your SMSF to purchase the property from you. Both avenues can present challenges from a cost, taxation and contribution limit point of view so you should seek professional advice to determine if such as strategy is appropriate for you.
Finally, while superannuation is likely to be a relevant piece in your unique retirement planning puzzle, be aware that any contributions you make to super will be preserved and unable to be accessed by you until such time as you at least reach your preservation age (currently age 56, increasing to age 60 over time based on your date of birth) and look to retire.
There are likely to be a number of opportunities for a small business owner to make strategic and ultimately beneficial decisions now as they transition out of running their business. Seek professional advice early in the process to make sure no opportunities are missed.
This information is current as at 08/05/2017.
This information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on it, you should consider whether it is appropriate for you. Any opinions expressed in this article are the author’s own.