Can you use your super or an SMSF to buy a franchise?

• You can generally withdraw super when you turn 65, or when you reach your preservation age and retire (ATO).
• Early access grounds include compassionate grounds, severe financial hardship, terminal illness and incapacity. Buying or starting a business isn't among them.
• An SMSF's investments must meet the sole purpose test: providing retirement benefits for members, not a present-day benefit for you or related parties.
• SMSFs generally can't lend to members, acquire assets from related parties, borrow money, or hold more than 5% of their assets as in-house assets.
• Promoters who offer to move your super into an SMSF so you can spend it early are running illegal schemes, the ATO warns.
• Once you meet a condition of release, the money is yours to use, but putting retirement savings into one business needs licensed advice.

The ATO lists these conditions of release. Until one of them applies, your super stays preserved in the fund.

• You turn 65, even if you're still working.
• You reach your preservation age and choose to retire.
• You reach your preservation age, keep working and start a transition to retirement income stream.
• You meet a condition that allows early access.
• Preservation age is 60 for anyone born from 1 July 1964, and between 55 and 59 for people born earlier.
• Retirement means you've stopped paid employment at 60 or over, or before 60 after reaching your preservation age, and your fund must be satisfied you don't intend to be employed again.

The ATO says you can access super early only in very limited circumstances. These are the grounds, and none of them covers buying a business.

• Compassionate grounds, for specific costs: medical treatment or medical transport, home or vehicle changes for a severe disability, palliative care, a dependant's death or funeral, or preventing foreclosure or forced sale of your home.
• Severe financial hardship, handled by your super fund, not the ATO. Moneysmart explains that before 60 it requires 26 weeks of income support and allows up to $10,000 once every 12 months.
• A terminal medical condition, certified by two registered medical practitioners.
• Temporary or permanent incapacity.
• Balances under $200, in some situations.
• Hardship withdrawals are taxed as normal super lump sums: generally between 17% and 22% if you're under 60 (ATO).

Using a hardship or compassionate release to fund a business purchase doesn't fit these rules. If you give fraudulent documents to the ATO or your fund, the ATO says penalties for false and misleading statements apply.

The ATO says an SMSF can run a business only if the trust deed allows it and it's operated for the sole purpose of providing retirement benefits for members. These rules are the sticking points for a franchise you plan to work in.

• Sole purpose test: every investment must be made and maintained to provide retirement or death benefits. A pre-retirement benefit to you or a related party can breach it.
• No present-day benefit: the ATO says no one associated with the fund should get a present-day benefit from its investments.
• Related parties: the fund generally can't acquire assets from members or related parties. Private company shares aren't listed securities, so they can't be acquired from a related party.
• In-house assets: loans to, investments in and leases to related parties are generally capped at 5% of the fund's total market value.
• No help for members: the fund can't lend to you or a relative, or act as guarantor on your loan.
• Borrowing: SMSFs generally can't borrow, and the ATO notes the rules prohibit or limit credit arrangements and overdrafts for businesses run through a fund.
• Wages: if the fund's business employs a member or relative, their pay must not be higher than the standard for the role, and the ATO looks closely at trustees employing family members.
• Breaches can lead to penalties, the fund being made non-complying and losing its tax concessions, trustee disqualification or prosecution.

In short, owning a franchise you work in, drawing a wage from it and using its income now clashes with rules designed to keep super for retirement. Get specialist SMSF advice before considering any business investment.

The ATO and Moneysmart both warn about promoters offering early access to super. Watch for these signs.

• You're told to transfer or roll over your super to an SMSF so you can access it.
• You're told you can put the money towards anything you want.
• The promoter charges high fees and commissions.
• You're asked to hand over your identity documents.
• The pitch targets people under financial pressure or unfamiliar with super laws.
• You're assured the arrangement is legal and safe, which Moneysmart says scammers often claim.

If you access super illegally, the ATO says the amount is included as income in your tax return, you may pay extra tax, penalties and interest, and you can't put it back into your fund. In one case the Federal Court imposed a $220,000 penalty and a 7-year ban on a promoter.

If you've met a condition of release, you can generally withdraw your super. That doesn't make a franchise a good use of it.

• Confirm with your fund that you meet a condition of release before relying on the money.
• Work out how much retirement income you'd give up, and how long the franchise would take to pay you back.
• Keep enough outside the business to live on if it takes longer than planned to pay you.
• Decide how much of your retirement savings you're prepared to put at risk in a single business.
• Understand the tax. The ATO notes that for people aged 60 or older, a super lump sum generally isn't taxed unless it includes an untaxed element.
• Get licensed financial advice. The ATO suggests checking that anyone advising you to set up an SMSF is a licensed financial adviser, which you can do through Moneysmart.

Once you're trading, the ATO's super rules depend on your business structure.

• Sole traders don't have to pay super guarantee for themselves, but can choose to make personal super contributions.
• A sole trader can claim a deduction for personal super contributions after notifying their fund.
• Partners in a partnership are responsible for their own super, while the partnership must pay super for its employees.
• A company must pay super guarantee for eligible workers, including company directors.
• Whatever your structure, you must meet super obligations for any staff you employ.

• I've confirmed with my fund whether I meet a condition of release.
• I haven't been approached by anyone offering to move my super into an SMSF for early access.
• If I'm considering an SMSF investment, I've read the ATO's investment restrictions and my fund's trust deed.
• I've had licensed financial advice on how using super affects my retirement.
• I've checked that my adviser is licensed.
• I've kept enough outside the franchise to live on.
• I understand the tax on any lump sum I withdraw.