It is never a wise idea to depend on your business to provide for your superannuation expenses. You should have a superannuation plan in place that will take care of that. The way most business owners do this is by putting aside a small amount each month towards a retirement fund.
Superannuation Planning for Small Business Owners
If a small business owner, or any business owner for that matter, ignores superannuation, he or she is doing so at his or her own risk. However, that’s not because there are legal implications and repercussions involved; it is because they will be missing out on the advantages of super for small business owners.
Did you know that you could finance your premises through super and help your business’ cash flow in the bargain? Or that by contributing to super the government would give you a 100 percent tax deduction up to certain limits? Or that you could retain as much as 4 million dollars tax free when you sell your business – with the help of certain tax exemption rules of course!
Super is complicated business and cannot be explained here in entirety. However we will focus on three examples – starting out, growing and selling.
Starting out
With certain qualifying factors in place some small business owners are eligible to hold business premises as a super asset. By using super, the business owner can use the freed up capital and cash flow for reinvestment in the business other than property thereby removing his or her dependence on a landlord.
Growing
Small business owners can contribute $50,000 to their super plans and receive a 100 percent tax deduction. Given that super earnings are taxed only 15 percent, this appears to be a very super attractive benefit.
Selling
An asset that is sold by a small business for profit attracts a discount of 50 percent on capital gains tax (CGT). ‘Active assets’ are entitled to further concessions, and combined, these could reduce the taxable profit on sale by as much as 75 percent. In addition, small business owners are entitled to a $500,000 CGT retirement amount for their lifetime. Since this entitlement is applied to individuals, if two people own a business they will be entitled to a total of $1 million. This means that if a husband and wife jointly sell a business on retirement for a $4 million profit they will not be taxed on the amount. And that’s not all. Splitting income, co-contributions, and abolition of taxes on payouts on reaching superannuation puts super on the ‘must do’ list for a business owner.
Having limited business fund is the least thing business owners want. While small business loans and even unsecured business loans are available, they could also inject fund with the help of super.
Some trivia:
By the year 2020 Australians are expected to have more than $2 trillion in superannuation.
Australians are the fourth largest savers in the world thanks to superannuation.
In Australia, small business owners have the smallest superannuation balances – on an average, $39,800 vs. $49,800 compared to all other employees.
Some tips while planning for super:
Make it a habit to review the annual budget and look for information on super – there have been many gems for small business owners in the past.
Visit your local chamber of commerce and talk to other small business owners. You will be able to pick up a lot of information and ideas from what others are doing with their super.
Visit the website ato.gov.au and australianbusiness.com.au. This has a lot of useful information for both, owners and employees.
Review your super plans regularly and not just for planning your retirement – it can be very useful for managing the cash flow of your business.
Get yourself a good accountant and financial adviser. Their advice will be worth the expense many times over.
Super offers many advantages but beware of the thugs. Ensure you get a licensed advisor and that he or she has a good track record and offers legitimate investment advice.
John Smith is a full-time blogger and has written a gazillion articles on the subject of personal and business finance.