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Opportunities for Business Owners: Superannuation Contribution Benefits

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Superannuation is one of the most significant assets many Australians have. Yet, we see many individuals (including business owners) who see superannuation as a compliance requirement – instead of the enormous opportunity it represents. Find out how to make the most of the superannuation contribution benefits and opportunities in this blog post.

Voluntary Superannuation Contribution Benefits

Making voluntary superannuation contributions can help you plan for your retirement and minimise your taxes (amongst other things). However, we see many business owners who don’t make the most of the opportunities that come with voluntary superannuation contributions. 

Build Your Balance for Retirement

Personal superannuation is an asset for business owners that offers more certainty than investing in your business alone. 

But, we often see business owners fail to pay into their superannuation. In fact, approximately 20% of self-employed workers have no super at all, compared to less than 10% of employees. This isn’t typically wise, given the immense advantages of building and managing your superannuation for retirement. 

Reduce Taxes

Voluntary superannuation contributions are one of the simplest ways to access a tax reduction in Australia. While the precise nature of the tax savings will vary depending on whether you make concessional (before-tax) or non-concessional (after-tax) contributions, adding to your superannuation is an essential part of your tax strategy. 

Some of the effects of making superannuation contributions include: 

  • Reducing your taxable income. 
  • Boost your superannuation balance for retirement.
  • Purchase your business premises via a self managed superannuation fund.
  • Allow your wealth to grow in a low tax rate environment.

Shield Against Bankruptcy Risk

Generally, funds held in a regulated superannuation fund are considered ‘protected assets’ and are not available to creditors in the event of bankruptcy. This means that business owners can leverage superannuation to shield themselves against the risk of future insolvency. 

It’s important to remember that bankruptcy laws are complex, and superannuation contributions do not offer blanket protection from creditors. You will need to seek professional advice if bankruptcy is a concern. 

Superannuation Contribution Benefits and Opportunities

Establish a Self Managed Super Fund

The number of SMSFs in Australia is rapidly increasing. Given that they offer greater control over the management of superannuation and the potential to access further tax minimisation strategies, this trend is unsurprising. 

The rules relating to self-managed super funds in Australia also offer additional advantages for business owners. These include:

  • The potential to reduce capital gains tax.
  • Tax rates are generally much lower than in other structures (income tax capped at 15%)
  • The potential to purchase your business premises in the SMSF 
  • The potential to earn ongoing income in retirement through business operations or rental income (or both).

Despite the potential advantages, an SMSF is not suitable for every business owner. Therefore, deciding whether to set up an SMSF is a major decision. It is a decision that should not be taken lightly or before seeking professional advice. 

Buying a Business Premises with Superannuation Funds

Once you set up a SMSF, you can make investments in a way that suits you. For business owners, buying a commercial business premises comes with several advantages. Making that purchase using superannuation funds can offer additional benefits (depending on your unique circumstances), including:

  • Pay Rent To Yourself, Not a Landlord. 

By purchasing your business premises using superannuation funds, you are building an asset for your future and creating wealth. 

  • Increased Protection Through Separate Entity Ownership. 

Your business entity and your superannuation fund are two separate legal entities. Keeping separate legal entities can help reduce your overall risk since the business premises is not part of the business’ pool of assets. This means your business premises may be protected if your business runs into financial difficulties. 

  • Access Tax Advantages. 

The rental income tax rate for self-managed super funds is 15%. This means that the ‘income’ your SMSF earns from your business leasing the business premises from the SMSF is taxed at a low rate of just 15%. Therefore, the fixed SMSF tax rate represents a significant tax advantage. 

Moreover, your business may be able to claim the rental payments as a deduction. Meanwhile, your SMSF can claim depreciation on your fixtures, fittings and improvements made to the business. 

If you’d like to make the most of the superannuation contribution benefits and opportunities, reach out. 

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