The tax rate of a self-managed super fund is 0% and this is not a trick like the trust was. In certain conditions, your self-managed super fund can actually pay 0% in tax on what it earns. The differentiator between the two is the 15% tax rate is what you pay when you’re accumulating your balance in super. The 0% tax rate is what you pay when you’re taking out a certain type of pension and you meet the requirements to have that concessional tax rate of 0%.
We don’t have any clients running businesses in their self-managed super funds, but we have a number of clients who own businesses in their self-managed super funds. We have clients that are earning significant amounts of money in their self-managed super fund from a business that are paying 0% in tax.
It all comes down to the structure that the actual businesses run out of. There are requirements to owning businesses in self-managed super. It is not as easy as setting one up, there are a lot of things you need to tick off, paperwork you need in place and you need to make sure you are doing what you need to do from a compliance perspective too.
At the start of tax planning, the maximum amount of tax you’re paying in super is 15%, which is almost half a company tax rate or a third of an individual’s highest marginal tax rate, so it’s sensational from a tax planning perspective.
In terms of asset protection, a self-managed super fund is not just a separate legal entity like a company is to a sole trader, but it is protected against bankruptcy. And that’s assuming that you haven’t just known something bad is happening and just chuck a whole heap of money in your super fund thinking it’s safe.
If you’ve made inconsistent contributions to your fund lately, they can most likely be unwound in the case of bankruptcy. But if you’re making $25K contributions a year, for 10 years, and then bankruptcy happens in the last year, they’re not going to say that your $25K is out of character but superannuation balances are normally protected from bankruptcy,
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