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We have commercial property, that we bought last year in the name of our company that we operate our business out. We got a good deal on the property, and we took advantage of the $40,000 tax deduction for that year. the loan principal and interest are for -$678,600 Applicable interest rate p.a. 5.89% and going up, A quarterly fee of $187.50 and we have an offset account to the Loan.
I have super off $670000 that has been earning from 3 to 5%. I have just turned 60 years old and looking to retire and sell my business.
The Question is, Can I set up a self-manage super fund (SMSF) and deposit the money into the offset account to negate the interest of the loan. Pay principal & Fees to the Bank and the interest to (SMSF) or just buy commercial property with (SMSF) and the stamp Duty for Vic which will be about $20000 for state of Vic all up $65000 p.a. I pay in to the $1250 a week
I am will to pay the Complex Question service which costs $165.00
Answer
I am quite happy to answer this as a basic question because I think the next level for you is to have an Accountant look at your overall situation and apply the following considerations. There are some really good tricks out there but not sure whether they can apply to you.
So for example:
- As you own the property in a company you will not be entitled to the 50% CGT discount when you sell. This means a lot of tax on inflation. At the moment it appears to be an active asset which will entitle you to the 50% active asset discount, retirement exemption on $500,000 each of the gain after the discount and the ability to put the gain into super over and above the basic caps and not taxed going in. Putting the gain into super will not be an option once you pass 74 years of age. There are many conditions of course and the one that worries me the most is the fact it has to be used in your business at least half the time your own it or 7.5 years whichever is the shortest period of time. Further, all you business assets must be under $6mil or turnover under $2mil. Obviously once you stop the business you will be restricted to only the $6mil turnover test that has not been indexed for decades so you might lose access to all these lovely concessions. You can see how a very careful plan to take full advantage of all these tax concessions will probably make all the decisions for you.
- Property used solely in a business qualifies to be transferred into a SMSF. The smsf can even borrow to buy it off you but that is generally a lot more expensive than your current arrangement. If the property is owned in your SMSF you can flick it to pension phase and receive the rent tax free and no CGT when you sell. Again careful planning because you have to make sure the rent or other liquid assets in the SMSF will cover the compulsory pension payments and of course transferring it across will trigger stamp duty but the transfer may be a way of making the most of the CGT small business concessions before you retire.
The bottom line is there is a huge opportunity here but it takes a plan and a crystal ball and lots of number crunching. It will be worth the investment in your future to pay someone to work through the options and how they relate to your particular circumstances and to do this before you retire from the business. Please consider that this sort of big picture advice back when you bought the building may well have saved you the stamp duty now to transfer across to a SMSF but at least the two step process will mean that you have the opportunity to put more into super through the small business CGT concessions to make this work.
So my advice is get advice using the above to make sure you are talking to someone who knows what they are doing.
