Here are three of the key reasons why an SME owner should have some of their savings outside a self-managed fund:
Andrew Lowe, head of technical sales strategy for OnePath, readily agrees that “while there is legislative risk associated with any [investment] structure”, investments held outside super are less vulnerable to government meddling.
“I don’t think you will find anyone to say that there is no legislative risk with super,” Lowe emphasises.
As discussed above, an older couple – depending upon their circumstances – can earn up to $57,948 outside super without paying a cent in tax. This takes into account the new $18,200 tax-free threshold and assumes eligibility for the Senior Australians and Pensioners Tax Offset (SAPTO) and the Low Income Tax Offset.
Philip La Greca, technical services director of self-managed superfund administrator Multiport, makes the point that eligibility for SAPTO depends on age (64.5 for women and 65 for men) and taxable income.
As La Greca says, this means that a person over 60 could earn an unlimited amount from a superannuation pension – which does not count as taxable income – and still be eligible for this big tax offset.
Even if you are years away from retirement, the expected tax treatment of your investments upon eventual retirement should always be considered.
And also as mentioned earlier, a couple – no matter their age – could earn dividends of up to $240,000 a year from a fully-franked Australian share portfolio without paying additional tax – other than using up their franking credits and paying Medicare. Again, it is assumed that the couple has no other taxable income.
One of the biggest tax breaks outside super for SME owners are the small business capital gains tax (CGT) concessions.
Eligible small business owners can claim small business CGT concessions upon the disposal of certain property used in the business. Examples include business premises.
Small business CGT concessions on the disposal of active business assets together with the 50% general CGT discount (applying to individuals and trusts) may significantly reduce or eliminate CGT.
La Greca makes the point that estate planning for assets held outside super can be less complicated from a tax and control perspective. For instance, a proportion of your super death benefits left to a financially independent adult child are subject to what could be called a de facto death duty of 16.5 per cent.
Lowe says “the big one for me” when making a decision about what assets to hold inside and outside super is access to the benefits if needed before retirement.
“Some of the small business owners I come across have volatile incomes,” says Lowe. Many would want ready access to at least some of their savings while still running their businesses.
With certain exceptions, preserved superannuation benefits must remain in the super system until members either permanently retire after reaching their “preservation age” (currently 55) or turn 65.
“If they are less than 55, access must be a consideration where you commit extra money to superannuation,” Lowe advises.
Both inside and outside super, some retirees adopt such strategies as aiming to pay a large chunk of their day-to-day living expenses from the dividend income from their shares without touching the capital. This can help them cope with volatile sharemarkets.
