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Stretching the limit: small business retirement exemption

SMSF Advice Case Study

Background

Peter withdrew $500K from his Self-Managed Super Fund to use for business and personal funds. The withdrawal was temporary and Peter intended to return the $500K in the next financial year.

Because Peter is over 65, he was legally allowed to withdraw the money. Also, Peter isn’t obliged to return the money to Super; he is welcome to invest it elsewhere, or spend it as he wishes. However, his preferred option was to enjoy a lower tax rate on earnings by holding the money in his Super

Goal

Peter discovered that it’s difficult to put $500K back into Super, due to the annual contribution cap of $100K once over 65.

Peter’s Accountant approached TriSuper Auditors to ask how he can return the money to Super without treating the original payment as a loan and overcoming the contribution caps

Process

Peter’s Accountant originally recorded the withdrawal as a loan because Peter always intended to return the money to his SMSF. However, SMSFs are not allowed to loan money to related parties.

In addition, the personal non-concessional contribution limit is $100K per year, which doesn’t cover the amount to be returned.

We learned that Peter plans to sell his business within 2 years and the proceeds may be eligible for the small business CGT concessions

Outcome

TriSuper Auditors advised the Accountant that treating the payment as a loan would result in the Fund breaching several sections of the SIS Act and likely lead to an ATO audit.

We suggested whether they may consider treating it as a benefit payment and review whether the member could get the money back into super by taking advantage the small business CGT concessions which allows sale proceeds to be contributed to super (subject to certain conditions) above the non-concessional caps.


If this SMSF case study sparks ideas for ways you can help your clients achieve their goals, give TriSuper Auditors a call on 02 4961 2788 or fill in the enquiry form on the right.

Contact Joel in the initial stages of an idea, so we can clarify the rules as they apply to your client’s situation.

Our role is to help you to provide wealth-creating and ATO-compliant SMSF advice for your clients.

For a confidential discussion, contact us today.

SMSF Accounting Awards 2017 Auditor of the Year

 

Joel Curry

Auditor of the Year (NSW)

SMSF & Accounting Awards 2017

 

 

 

This overview provides a summary only and shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The advice provided on this website is general advice only.