Super strategy for factory premises saves the day
How savvy restructuring led to great outcomes with a business property
In the beginning
Brian, Lorraine plus their sons Michael and David (not their real names) were running a manufacturing and wholesale business when they reached out to us for assistance. Their strategy of buying their factory in a related unit-trust structure from which their company operated had entailed massive monthly loan repayments that had squeezed the life out of their cash flow. The Bank was understandably reluctant to advance them further funds, given they had each drawn down on personal lines of credit secured by their respective houses to keep the business going. In short, an admirable aspiration had become a small business nightmare.
Brian, Lorraine plus their sons Michael and David (not their real names) were running a manufacturing and wholesale business when they reached out to us for assistance. Their strategy of buying their factory in a related unit-trust structure from which their company operated had entailed massive monthly loan repayments that had squeezed the life out of their cash flow. The Bank was understandably reluctant to advance them further funds, given they had each drawn down on personal lines of credit secured by their respective houses to keep the business going. In short, an admirable aspiration had become a small business nightmare.
How we helped
The family was considerably heartened when our analysis revealed that their business was fundamentally sound. So too, the independent property expert we recommended confirmed not just a healthy value but excellent long-term prospects. We just had to get them breathing space for the strategy to come good!
Our solution involved their self-managed super fund. With their combined accumulated super balances providing a welcome injection of equity and a refinance utilising the new limited recourse borrowing arrangement (LRBA) rules, we helped to negotiate with the Bank, establish the correct Holding Trust structure to allow the SMSF to buy the premises from the family. This was the game changer they needed.
The SMSF was legally able to purchase the factory and release significant cashflow to all family members – this allowed them to clear debt that they were personally liable for, and release cash to provide some extra flexibility and security.
It also meant that the monthly payments made by the business were tax deductible rent payments contributing to the Fund’s income and cashflow to enable the loan to be comfortably serviced. The family also enjoyed considerable peace of mind knowing that the asset was no longer at risk should calamity befall the business.
And what about tax you may ask? Here we utilised the small business concessions to negate the capital gains tax which would otherwise have applied.
The family was considerably heartened when our analysis revealed that their business was fundamentally sound. So too, the independent property expert we recommended confirmed not just a healthy value but excellent long-term prospects. We just had to get them breathing space for the strategy to come good!
Our solution involved their self-managed super fund. With their combined accumulated super balances providing a welcome injection of equity and a refinance utilising the new limited recourse borrowing arrangement (LRBA) rules, we helped to negotiate with the Bank, establish the correct Holding Trust structure to allow the SMSF to buy the premises from the family. This was the game changer they needed.
The SMSF was legally able to purchase the factory and release significant cashflow to all family members – this allowed them to clear debt that they were personally liable for, and release cash to provide some extra flexibility and security.
It also meant that the monthly payments made by the business were tax deductible rent payments contributing to the Fund’s income and cashflow to enable the loan to be comfortably serviced. The family also enjoyed considerable peace of mind knowing that the asset was no longer at risk should calamity befall the business.
And what about tax you may ask? Here we utilised the small business concessions to negate the capital gains tax which would otherwise have applied.
The outcomes
We continued to work closely with the family and their business grew from strength to strength – so much so that 15 years later they happily had to move to a bigger location. The original premises were sold, yielding a gain of 175% over the original purchase price, and providing significant increase in each members Superannuation balance, safely tucked away for their retirement.
We continued to work closely with the family and their business grew from strength to strength – so much so that 15 years later they happily had to move to a bigger location. The original premises were sold, yielding a gain of 175% over the original purchase price, and providing significant increase in each members Superannuation balance, safely tucked away for their retirement.
In their own words
Brian says it best – “I’ll always be grateful to Hansens – they were a lifesaver. We were on the right track but in a tricky situation with seemingly nowhere to turn. The SMSF solution was perfect to give us breathing space with the Bank so we could get on with building the business. It all worked out brilliantly.”
Brian says it best – “I’ll always be grateful to Hansens – they were a lifesaver. We were on the right track but in a tricky situation with seemingly nowhere to turn. The SMSF solution was perfect to give us breathing space with the Bank so we could get on with building the business. It all worked out brilliantly.”
