Business Succession Planning and the Role of Your Super Fund

Business Succession Planning and Superannuation | Symmetry Accounting & Tax

Planning for the future of your business is just as important as managing its day-to-day operations. Business succession is about having a clear agreement in place that determines what will happen to your business interests if you or a partner passes away, becomes permanently disabled, or otherwise exits the business.

A common approach is to arrange insurance cover so that, in the event of death or total and permanent disability (TPD), the insurance proceeds provide funding to buy out the exiting partner’s share. This ensures both continuity for the business and financial security for the exiting partner or their estate.

The challenge often lies in how these insurance policies are funded. Some business owners consider using their superannuation fund to hold and pay for the insurance policy. While this can seem practical, it comes with significant risks.

Why Using Super for Business Succession is Problematic

The Australian Tax Office (ATO) has raised concerns about using superannuation in this way. In fact, a 2015 ATO Interpretative Decision concluded that when a super fund trustee was directly involved in a business succession arrangement, it breached the ‘sole purpose test’ under the Superannuation Industry (Supervision) Act 1993 (SIS Act).

This test requires that a super fund must only provide retirement or death benefits for its members. If superannuation benefits are directed toward funding a business succession plan, the fund may be considered non-compliant. Other tax and compliance issues could also arise.

A Better Way to Structure Business Succession

At Symmetry Accounting & Tax Pty Ltd, we believe the problem in such cases arises when the trustee of the super fund is directly involved. Owning insurance inside super itself is not an issue—many people hold life and TPD policies this way to protect their family and retirement goals.

The key is ensuring that the business succession agreement is kept outside of the superannuation structure. For example:

• You (or your estate) may agree separately with business partners on what happens to your business interest if an insurance payout occurs.

• You don’t need to link your super fund directly to this arrangement—your will or a buy-sell agreement can direct how benefits are applied once they are legitimately paid out from super.

• 
  

This approach respects the sole purpose test while still achieving your business continuity goals.

Practical Considerations

Superannuation benefits, once released, can be applied in many ways—whether to support retirement, provide for beneficiaries, or even repay debts. What matters is that the fund itself is not bound to serve business succession purposes before payout.

By keeping agreements separate, you can:

• Protect compliance with superannuation law.

• Ensure smoother transitions for your business partners.

• Maintain flexibility in how benefits are ultimately used.

Getting Expert Advice

Business succession planning is complex, particularly when superannuation is involved. Getting it wrong can risk compliance issues with the ATO, or worse, jeopardise the future of the business you’ve worked so hard to build.

At Symmetry Accounting & Tax Pty Ltd we work closely with trusted legal and financial advisors to help business owners put in place tax-effective and compliant succession strategies.

If you’re considering how to safeguard the future of your business, speak with us today. Together, we can design a plan that provides certainty for you, your family, and your business partners.