We recently gave advice to two business partners operating a fitness club looking to purchase a business premise together for $1m.
The business partners did not have the $1m outright to purchase the property. They each had $200,000 in personal savings (totalling $400,000 combined).
However, each partner did have a self-managed superannuation fund (SMSF) with each SMSF having $300,000 in cash reserves. The two SMSFs had total combined cash reserves of $600,000.
We were asked to advise on a structure that provided ideal tax minimization and asset protection.
Solution: Two separate SMSFs using a fixed unit trust with a 50% investment by each SMSF
The business partners boosted their respective super balances by making “non-concessional (tax free) super contributions” using their personal savings of $200,000 each to their respective SMSFs as follows;
Original super balances: $ 300,000
Add: Non Concessional contributions: $ 200,000
Total Super balances (Each SMSF): $ 500,000
The combined super balances are now: $1,000,000 ($500,000 each SMSF)
A fixed unit trust was then established with each SMSF purchasing 50% of the units in the fixed trust at $500,000 each.
The fixed trust now held $1m in cash reserves and purchased the business premise as follows:
Tax Benefits
The fixed unit trust subsequently rented the commercial premise to the fitness club business, which in return paid rent to the fixed unit trust and claimed a tax deduction for the rent expense.
The fixed unit trust made annual profit distributions to each respective SMSF who enjoyed concessional tax rates of 15% on the profit distributed.
If you are considering a joint venture arrangement with two SMSFs acquiring property, please contact one of our Superannuation Specialists on 03 9863 6997 to discuss if the above strategy is suitable for your needs.
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