If you are the owner of a small business, you might not be paying too much attention to your own superannuation because your business is your ultimate retirement asset, right?
Every year you make a profit you increase your balance sheet and the value of your business grows over time. As a business owner myself, that is my aim too. And on this point, the Government also agrees. The Small Business Capital gains Tax (CGT) Concessions have been around for years. They are designed to allow you to convert your business sales proceeds either to an other business or to superannuation with a big Capital Gains Tax break.
However, I want you to also consider the benefits for business owners of also maintaining traditional superannuation as there are three (3) benefits you probably haven’t thought about.
- Your business can only become your retirement asset if it makes it that far. If your business hits trouble and folds, there will be no retirement asset to worry about. On the other hand, a traditional superannuation fund can be used as a means of accumulating personal savings while times are good and importantly, this money is generally quarantined from creditors and insolvency proceedings if things do turn bad.
- Similarly, if you the owner don’t make it through to retirement because of accident or serious illness, your business probably won’t make it either. There is often a high co-dependency between the health of a small business and the health of its owner. Just as the business must stay healthy, so must the owner, otherwise there will be no retirement and no retirement asset. On the other hand, traditional superannuation can offer significant benefits if you don’t make it through to retirement in a healthy state or, if you don’t make it at all. If you die before you retire, your superannuation becomes a benefit for your immediate family. If you can never work again because of accident or illness, a traditional super fund then becomes an early source of much needed cash regardless of the fate of your business. Of course, it is your call how much benefit you accumulate; and don’t forget that insurance can also provide a significant boost to your cash payout.
- There is a tax incentive to contribute to your own superannuation. A deduction is generally available for business related contributions. Even as a sole trader you have the option to make personal tax deductible contributions. Contributing to your own super as a business owner and claiming a deduction for it has the effect of reducing your tax liability and increasing the net earnings you get to keep; i.e. part paid to you and part contributed to your super fund