Business owners should consider using an SMSF to house the investments and assets of the business for retirement preparation and risk mitigation, according to a succession planning expert.
“The reason for a business owner to have an SMSF is simple. It’s to keep the investments and the assets away from the risk of the business,” Succession Plus chief executive Crag West said.
West used the example of business real property where a business owner buys the premises from which the business operated.
“Having the business own the business premises as an asset, like a factory, is not where we want it to be. It’s terrible for asset protection and it’s terrible for taxation,” he said.
He pointed out a raft of difficulties could arise in the event of the business being sold, with the new owners not needing the existing operating premises that was owned within the business structure.
In addition, the owners of the business will need to consider what they want to do with the business premises in retirement.
That situation in particular strengthened the case for holding the business assets within an SMSF, West said.
“The business owner will need to decide whether or not to keep the building or sell the business off with the building,’ he said.
“Maybe they can sell the business with a long-term lease on the building because it’s a building that suits the buyer.
“Maybe the buyer will pay rent over the next 10 years into the business owner’s SMSF. That’s a pretty good outcome if you can manage that.”
The scenario highlighted the importance of getting the structure of a business right, a fact many business owners were beginning to understand, he said.
“The number of business owners that have an SMSF has changed dramatically in the last five years,” he said.
“It used to be the case where not everybody had one, but now most business owners have got an SMSF.
“What’s more, they know how to use their SMSF and are starting to see some benefits of using those kinds of structures.”