There is no doubt you have heard a lot about the recent super reforms. With so much being said, we’ve distilled our top strategies to help you stay compliant and take advantage of the new rules.
Make voluntary personal contributions
The goal posts are changing around both concessional (pre-tax) and non-concessional contributions caps. Lower super caps make it harder to save a large nest egg, so you may want to consider adding a little extra now.
For all ages, the limits have dropped for both concessional and non-concessional contributions (25K & 100K).
However, from 1 July 2017, the “10% rule” has been abolished for superannuation contributions (meaning that individuals who earn greater than 10% of their income from employment are now able to make voluntary concessional contributions).
Be aware of the consequences for contributing too much into super. While super is still a very tax-effective place to save for retirement, the benefits can be undone if you aren’t aware of the reforms.
Play ‘catch up’ with concessional contributions
Those planning ahead should take note of changes to unused concessional contribution amounts, which will kick in from 2018. While not on offer this year, from July 1 2018, individuals will be able to “carry forward” any part of their concessional contributions limit they have not used and access these on a five-year rolling basis.
The unused cap amounts can start to be carried forward from 1 July 2018, that is, from the start of the 2018/2019 financial year, which means the 2019/2020 year is the first financial year that individuals can take advantage of unused cap amounts from previous financial years.
Buy business premises in SMSF
Establishing your own super fund with the intent to purchase an investment property requires you to understand all necessary tax obligations.
In order to purchase an investment property through your SMSF, you must comply with the following criteria. Your SMSF must in all respects:
- Meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- Not be acquired from a related party of a member
- Not be lived in by a fund member or any fund members’ related parties
- Not be rented by a fund member or any fund members’ related parties
You cannot purchase a property from an associate, or acquire the property with the purpose of renting it back to an associate of the trustee. This would be a breach of related party acquisition rules and the in-house asset rules. The exception to this relates to Business Real Property, allowing you to acquire and lease property from a related party if it meets the definition of Business Real Property.
Put proceeds from the sale of business into super
If selling your business is your retirement plan, it is not only an emotional journey but a challenging task, so it’s important to get it right.
Consider whether Capital Gains Tax (CGT) will be applicable and also, consider the range of CGT concessions that may be available to you in the event of a sale.
In particular, the retirement exemption may be available, allowing you to contribute the proceeds of the CGT sale to superannuation, under a separate CGT cap (ie. Not counting towards either your concessional or non-concessional cap).
The Small Business CGT Concessions are complex and require expert advice for application, to ensure the correct outcome is achieved. Consequences of not applying the rules correctly can be significant, so we always recommend you get the right advice, before selling the business.
To wrap things up, we asked Director of BFP, Brett Wright, to weigh in on the topic and talk the ‘fun stuff’:
What if things don’t go to plan between now and retirement?
Many business owners are key people in their business and without the owner, the business would not be worth as much or it may not survive at all. The sale of your business can go a long way to providing you (and your spouse) with a comfortable retirement.
If your working life was cut short because of an unexpected illness or accident, what plans can you put in place to protect the income you will earn between now and retirement, plus protect the capital value that you would expect to receive if you sold your business?
- Sickness and Accident Insurance can protect millions of dollars of future income if you cannot work because of an illness or accident and is generally tax deductible to either you personally or your business.
- Life and Total & Permanent Disability Insurance can provide lump sum payments to help you or your family clear debts and pay ongoing expenses.
- Key Person Insurance can provide cash injections into your business, to give you, your family and your business financial breathing space until you can return to work; or if your illness or accident means you cannot return to work, key person insurance can help to buy time and avoid fire-sale situations.
There are many different ways to structure Life, Disability, Key Person, Sickness and Accident insurance policies for business owners, with some being able to be held within super and some needing to be held outside of super. It is best to discuss this with your accountant and insurance adviser before deciding on what policies will be best for you and how to structure the ownership of them.
Not sure where to start with your super plan?
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Please note that this is general advice only and should not be taken as advice specific to your circumstances. You should consider whether the information is appropriate for your needs and where appropriate, we recommend you seek professional advice
We help business owners and executives protect their income and cash flow if they cannot work because of an illness or accident.
For 28 years we have helped our clients with their insurance needs, representing our clients best interests, not the big insurance companies.
We have a 100% success rate getting our clients legitimate insurance claims paid and this service is free to our clients.
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