John and Bianca currently own a commercial property in their family trust that they use in their business.
They want to borrow to transfer a commercial premise to their SMSF. When they do this they have the ability to utilise various super and tax strategies to reduce or eliminate any CGT (Capital Gains Tax) and by correctly structuring their debt arrangements they can also eliminate existing non-deductible debt.
These net proceeds can then be used for working capital within their business.
The Family Business – Roof Construction Pty Ltd
Business premises (factory) held in Family Trust with a value of $600,000.
Factory has a deductible debt of $200,000.
There is a rental agreement in place between the business and family trust.
The Family Home
Value of $700,000 with non-deductible debt of $300,000.
This property can potentially be used as business security.
The SMSF borrows money and holds the commercial property via Bare Trust.
Transfer of the Business Real Property into the SMSF (therefore No CGT payable, and asset is treated as a ‘going concern’).
Family Trust receives $600,000 – which is used to payout the Factory debt of $200,000.
John and Bianca payout $300,000 home loan (which is non-deductible debt).
A further $100,000 can be invested, or contributed back into Super or used as working capital within the business.
100% deductible debt for SMSF, being made from deductible super and rental payments in the business, and future growth of property will become CGT exempt (if property is sold post-retirement).