Q: I have a small business that needs some finance to expand. I also have some superannuation, about $470,000 worth, from a previous job that I left to start the business. The super is with a retail fund. I understand it is possible to use super to provide some financial assistance for a business, but you need to start a self-managed super fund? Is this the case and what do I need to know? Klaus
By way of background, when the current superannuation legislation started in the mid-1990s, the intention was to place limits on the types of investments that could be invested, lent or leased to The purpose of these rules, says Colley, was to ensure that if the business of a related party in which an SMSF invested was not successful, it did not affect the member’s super and leave them with nothing towards their retirement.If you look at how super can be used to expand a business, says Colley, this is only possible with an SMSF because large funds deal in many millions of dollars when making investment decisions.
The amount that can be invested or lent may be restricted as it will depend on whether you, the SMSF and other related parties have “control” of the company or trust. Where control is involved, these investments are referred to asIf it is considered that the trust or company is controlled by related parties, the SMSF will be limited to invest, lend or lease a total of no more than 5 per cent of the market value of its assets in all related party investments.
Called a limited recourse borrowing, the arrangement involves an SMSF taking out a loan from a third-party lender and using this to buy a single investment to be held in a separate trust. This separate trust will keep such assets apart from other investments. The decision to buy a business premises is a commercial one, with potential advantages like the freedom to renovate it whenever you wish or to sell it if you wish to move the business. A minus is the cost of ongoing maintenance.