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For some of those in business, super does not have a great deal of appeal, as they wish to build their business as their way to securing their future.Building any business is largely about managing cashflow, and with company tax,GST, and super drawing cash away from the business it is hardly surprising that many business people wish only to pay the minimum amount required.

Compounding this problem, is that the investment returns most super funds have traditionally provided has been relatively poor next to the possible returns the business could have achieved, by using the proceeds for additional marketing, advertising, reduced overdraft interest paid, and in capitalising into business infrastructure.

This thinking is hard to fault.

However, a strategy that business people may find appealing, is the idea of utilising existing superannuation benefits and future contributions to super to purchase a commercial premises, which could be possibly the one you either currently own or lease.

It works like this:

Michael Smart is a 45 year old who owns a successful corner store through his family company, he is currently owns the premises worth $600,000 and is paying off the loan of $300,000.

Michael and his wife Julie own their house worth $500,000 outright, and the couple have a combined super of $120,000.

Michael would like to be able to expand his business but is hampered by is hampered by existing debt. He would like to be able to use his super assets to reduce that debt. He believes that the shop premises if held in the super fund would provide good long term growth and a stable rental income.

They decide to sell the shop premises to a private unit trust (which they control) in which the super fund invests its $120,000 and makes a contribution to super of an additional $180,000 which will also be invested in the unit trust. This makes the super fund investment a total of $300,000. Michael then refinances the balance of $300,000 to be secured against his own house, and the refinanced monies are then invested in the private unit trust.

To clarify what has occurred, Michael and Julie have essentially pooled together their super with their personal investment, via a unit trust, to purchase the property, without the super fund borrowing.

Note: the unit trust now has NO DEBT OR BORROWINGS and ALL transactions MUST be conducted at market value.

Michael now has a negatively geared investment. He has borrowed monies for an investment purpose ie invest in the unit trust, and will be entitled to a distribution on the net rental share on the property generates, as well as any capital gains.

Michael's business now has an additional $120,000 in cashflow, and no debt on the business property.

Note: If Michael has his overdraft secured against the 'old' business premises he would need to renegotiate this and move the security to his own house. It is very important that no form of encumbrance, charge, lien is allowed to exist on the 'old' business premises.

Now if Michael decided that he wanted to increase his superannuation contributions in the future, he could use these additional contributions to purchase additional units in the unit trust. As always this must be done on an arms length basis, and there may be capital gains tax and stamp duty implications to resolve.

However, if over the course of the coming years Michael & Julie contribute additional amounts to super, they may be able to purchase the remaining units in the trust so that their superannuation fund owns 100% of the unit trust.

This can provide significant tax savings!

For example, if the business premises improved in market value so that by the time Michael and Julie decide to retire at age 60 years, the property which the fund had been investing in for 15 years, doubled in value the property would be worth $1,200,000. If they sold after they had retired would pay NO TAX on a capital gain of $600,000.

This $1,200,000 investment would also provide a combined allocated pension of between $67,420 and $133,340 per annum


What you CAN do?

  • You can rent it from yourself at independent market value
  • You can run your business from these premises
  • The super fund can purchase the property from you at market value

What you CANNOT do?

  • Purchase the property on a non arms length basis
  • Rent the property on a non arms length basis
  • Have any encumbrance, debt, lien, charge etc' over the business premises.

Additional Issues

Whilst this strategy may be appealing to many people a number of issues need to be addressed and planned for, and this strategy may not be as appealing when looked at when your personal circumstances are taken into account.

Such issues may include but not limited to:

  1. Capital Gains tax consequences
  2. Mandatory cashing/pension obligations
  3. Time to retirement
  4. Minimum pension requirements
  5. Reasonable Benefit Limit issues
  6. Balance of member accounts
  7. Liquidity of fund assets
  8. Investment strategy consequences
  9. Make up of current benefits
  10. Future fund earnings

This example is not designed to provide advice, and is merely an example of one possible outcome. Your personal circumstances must be taken into account prior to making any decision. We strongly recommend that you seek advice from a specialist licensed financial adviser prior to making any decision.


No investment advice provided to you. This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs. You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs.You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.


To find out more and to apply online to see if a Self Managed Super Fund suits you, click here.


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