Director at Bishop Collins Chartered Accountants.
Financial Services & Wealth Management expert.
Specialising in Self Storage Industry.
Protecting your Assets and Minimising your TaxAs self-storage owners you work hard to maximise the value of your business. On a daily basis you’re selling to demanding and cost conscious customers and operating in a market which is becoming more competitive each day. You may be using the latest sales strategies to convert every enquiry into a sale and maximise the sale value to each of those customers. All of this hard work may be undone if you hold your self-storage assets in an inappropriate structure which has poor asset protection and results in you paying more income tax than you should. There is no one size fits all solution to the ownership of self-storage assets as the businesses themselves vary dramatically in size and nature. However, there is one basic rule you should consider when choosing your business structure. Your operating business should be owned in a separate entity to your Freehold assets An operating business has significant risks attached to it including employees, WHS, insolvency, tax related compliance, contractual risks, customer and various other possible litigants. Should the business be subject to any of these claims it is important creditors do not have access to your most valuable asset, being your freehold land and buildings. As noted above there is not a one size fits all solution but we have found the following structure has provided significant benefits to our self-storage clients. The benefits of this structure include:
- Strong asset protection of freehold assets in SMSF.
- A long term lease legally protects SMSF for current and future rental payments due from operating business (this may also include other payments due such as a “make good payment”).
- Significant tax savings are achieved as rental payments are tax deductible to company at the corporate tax rate (generally 27.5%) and the rent is taxed in the SMSF at only 15% or 0% if the SMSF is in pension phase.
- Significant capital gains on the sale of the freehold will be in the SMSF at a low tax environment of 10% or 0% if the fund is in pension phase.
- SMSF can borrow to acquire asset or restructure from related party.
- In addition to rental payments annual superannuation benefits are paid to fund to increase cash flow and allow for further investments.