“My business is my super” – oops !
For many business owners this is the reason they do not contribute funds into super. Recent Australian Bureau of Statistics research shows us that less than 20% of SME business owners actually contribute into superannuation.
For most business owners the capital and cash flow requirements of the business need cash and typically this comes from the business owner either in the form of injection of capital (possibly from savings or from a drawdown on home loans for example) or in the form of reduced drawings -many business owners are not paid a market salary many have spouses who work will contribute to the business without being paid and as the research shows very few contribute to superannuation.
In addition, most SME business owners are used to being in control managing their own affairs and I have been told many times by business owners of the media and anecdotal evidence that “super funds are losing money”, or “I can get a better return inside my business.”
Whilst this may be true in some cases, the benefits in terms of asset protection and taxation efficiency far outweigh these issues when analysed correctly.
Of course the research also tells us that less than half of business owners successfully extract the value of their business upon retirement and in order to fund retirement this assumes the value of the business is actually enough (retirement is becoming more expensive as people live longer).
Many business owners are scared of the legal and compliance complexities of owning and running a self managed super fund however with the right advice this does not need to be a major issue and the benefits far outweigh the increased effort, time and cost.
Contribution caps have made it difficult to get large sums into superannuation to generate a tax-effective income stream in retirement. With many family businesses owned and run jointly by husband and wife, the CGT cap contribution is a welcome opportunity available to both parties. When combined with the general contribution caps, a CGT cap contribution may allow a retiring couple to sell the family business, make contributions to superannuation in excess of $3.3 million and commence a tax-free income stream.