Early access to smsf superannuation when facing business stress
It might be tempting as a business owner to take early access to smsf and superannuation. As the economy gets tough for many small business owners, keeping the doors open can feel like a tightrope between survival and financial disaster. With this in mind business owners who also run their own SMSF are faced with these pressures, and it’s tempting to access these funds. This may lead some to consider early access to smsf superannuation using the benefits of their Self-Managed Super Funds (SMSF) to keep their small business going.
However, before considering this, you must grasp the serious legal and tax consequences of accessing your super early.
Why the ATO and Government Oppose Early Access!
Your superannuation exists to fund your retirement, and strict laws govern when and how you can access it. Early access to smsf superannuation is typically reserved for particular personal circumstances—such as severe financial hardship or terminal illness. The Australian Tax Office (ATO) has made it abundantly clear that the compassionate grounds for early release do not include bailing out a struggling business.
Early access to smsf superannuation for business purposes is illegal. The Superannuation Industry (Supervision) Act forbids trustees from using SMSF funds to provide financial assistance to themselves or their relatives in this way. When you breach these laws, the ATO disqualifies many trustees each year, and illegal early access is one of the most common infractions.
Exploring ways to Free Up Business Capital via your smsf and not breaching the laws!
Before we discuss options using your SMSF, it is imperative to get advice. It may be feasible to restructure a small business using a registered liquidator, or there may be no easy solution. Liquidation may be the only pathway forward. We can put you in contact with the appropriate professional to discuss your options.
However, let’s now explore if your SMSF can be part of the solution. Instead of using early access to smsf superannuation, which is illegal, other ways may be worth considering. There are legitimate ways to leverage your SMSF’s assets to help your business indirectly. One such strategy involves using your SMSF to purchase property that your business uses. For example, an SMSF could buy the premises your business operates from and lease it back to you. This can free up much-needed capital without breaching the law.
However, these transactions come with a set of conditions:
– The property purchase must align with the SMSF’s investment strategy and comply with the trust deed.
– It must pass the sole-purpose test, meaning its primary goal is to provide retirement benefits.
– The transaction must occur at arm’s length, meaning that the purchase price must reflect the property’s market value. Overpaying for property could have serious tax repercussions, negatively impacting your SMSF’s long-term value.
Given the complexity of these arrangements, it’s crucial to seek independent financial advice before proceeding.
The cost to you and your next egg of Illegal early Access to superannuation
The consequences of illegally accessing your super can be severe and long-lasting. Here are some of the penalties you could face:
Tax penalties: Any amount withdrawn illegally will be classified as income, subject to tax in your next return. You may also incur penalties for tax shortfalls, along with interest payments.
No re-contributions: Once illegally withdrawn, you cannot redistribute the funds to your SMSF.
Loss of legal protection if promotor used: If a promoter helps you access your super illegally, any fees or commissions they take from your fund are not deductible.
SMSF trustee disqualification: All SMSF Trustees who illegally release funds to members without meeting a condition of release may face administrative penalties and even disqualification as SMSF trustees.
Steer Clear of Legal and Financial Pitfalls
Understanding the laws around SMSF access is essential for any business owner. The line between legal strategies and illegal actions is clear but often complicated. Before taking any steps that could put your retirement savings at risk, seek professional advice from superannuation law experts to ensure your business strategy aligns with legal requirements.
In these challenging times, keeping your business and retirement plans on stable ground is crucial without stepping into legal and financial quicksand.
