Can I borrow against my Super to buy or support my business?
Unfortunately the answer is probably ‘No’. Super funds pay a discounted/concessional rate of tax on earnings (15%). To keep getting the discounted rate they have to comply with Superannuation legislation. One of the rules is that the ‘sole purpose’ for the fund is to provide retirement benefits to members, not provide a source of finance to members or their associates. You would have to be careful to make sure that the sole purpose test was not breached.
Also a member cannot (in most cases) receive a benefit before retirement. There are numerous exceptions but none include loaning money to fund your business. If the fund was to provide finance to a member, even if it is at market rates, it may still present a breach of this section. The Australian Taxation Office (“ATO”) says that when you have been given discount loan rates or favourable terms by your super fund, this could have serious consequences. In addition to putting your member’s benefits at risk, your SMSF could be found to be non-complying and would, therefore, not qualify for concessional tax rates. The prohibition on loaning funds extends to associates of members as well.
The Superannuation Industry (Supervision) Act 1993 prohibits certain types of investments. A SMSF:
- Cannot lend money or provide any financial advantage to a member, a relative or associate of a member.
- Must limit investments in, or loans to, ‘related parties’ to 5% of the market value of the fund.
- Cannot buy assets from a member or a relative or associate of a member except for business real property.
Maybe the fund could buy the business premises from which the franchise would operate. That is allowed.
One piece of information missing from your question is how old you are. If you are older that your ‘preservation age’ which for most is 55 years of age or more, there are ways to access your super benefits. Perhaps you have retired as an employee (hence the desire to buy a franchisee) or you may want to consider a ‘Transition to Retirement’ pension which allows you to access up to 10% of your fund balance pre-retirement. If you are over 65 years of age then accessing your benefits is allowed.
More information? To find out more, give us a call on 1300 023 782 or email email@example.com.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)
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