Alfred and Regina, aged 45, run their own business from leased premises and earn $120,000 each. They wish to purchase a commercial business premises for $600,000 to run their business from. Combined, they have $250,000 in super and are displeased with the current investment performance of their superannuation fund. They believe that a business premises returning approximately 7% income and 4% capital growth would provide greater long term returns.
Alfred and Regina seek some advice and determine that if they purchase the premises outside superannuation the net asset value in 15 years, when they intend to retire, is $1,100,000*. Whereas, if they purchase the premises within their SMSF the net asset value is $1,395,000*.
Alfred and Regina decide to set up a SMSF, use $200,000 of their superannuation assets as a deposit and borrow $400,000 through an instalment warrant to purchase a business premises within their SMSF.
Outcomes
- Alfred and Regina believe that they have put their superannuation assets into a better long term investment, assisted their business cash flow and have control over their superannuation
- Their compulsory superannuation contributions have serviced the debt, which is extinguished early in year 12.
- By using their compulsory super contributions to service the debt there has been no drain on their personal cash flow.
- There is no capitals gains tax on the sale of their premises when they retire. This has been achieved by converting their SMSF to pension phase a age 60.
- The taxation structure within the super environment has provided them with an extra $295,000 when they retire.
- Through gearing they have increased their super assets which are in a tax effective environment
