Let's say you run a business and you want to buy the premises. The premises is worth $1,000,000. You're 40 years old. You might fund that mostly from the bank, around $600,000, $700,000 and the rest from your SMSF. Over the next 20 years through to retirement, you pay the loan off and you've got a fully unencumbered asset.
You bought it for $1,000,000 but it's now worth $2,000,000. So you made a $1,000,000 gain on that.
The timing of when you sell that asset is huge from a tax perspective. If you sell that once you're in tax free pension mode, you'll pay 0% tax on your $1,000,000 gain. Now that's impressive.
If you sell it and you pay normal Capital Gains Tax in Super, you'll revert to the 10% tax rate which is the 15% tax less the 1/3 discount. So you'll pay 10% on your $1,000,000, or $100,000 in tax, which is a pretty low tax even if you are still accumulating your balance.
Tax Free Business Profits
This is a bit of a cool thing that we've done for a couple of clients now. If you've got multiple business partners looking to start a business, we can look at owning that in your Super Fund.
The cool part about that is the profits of the business go to your SMSF. Again, you're accumulating your balance, you're paying 15% tax. But if you're retired or you've ceased employment after you've turned 60, and you've met those conditions of being a 0% rate, then your profits that come through from that business might be 0%, which is a lot better than paying 30% or more outside of Super.
You might have $100,000s in business profits going to your SMSF tax free instead of paying $30,000 on every $100,000 of profit.