A popular strategy among business owners is to purchase (or transfer) their business premises into a Self Managed Superannuation Fund (SMSF). The business property is then leased to the business entity (or individual) as the tenant.
Even if your SMSF does not have the full purchase amount, SMSF’s can borrow money in their own right for this purpose, if done properly and in accordance with the Superannuation Industry (Supervision) Act, 1993 (the SIS Act).
A SMSF may borrow funds from a related party such as you (in your personal capacity) or a family member. Alternatively, a financial institution may provide the funding, many of which now offer packages specifically tailored to SMSF lending.
Any loan arrangement between yourself (or other related entity) and your superfund must be at arms’ length and properly documented to ensure compliance with the SIS Act. This means that the loan must be in writing, on commercial terms and payments under the loan agreement must be met, in order to stand up to scrutiny of auditors and regulators.
Need more information on borrowing rules? This article by SMSF Coach offers specific information on borrowing rules relating to SMSF’s.
There are many benefits to owning your commercial premises in your SMSF, including:-
- the ability to purchase a sound investment property that you may not have otherwise been able to afford;
- greater control over the use of your business premises;
- tax advantages;
- protection of your SMSF owned assets from creditors in the event of financial distress.
For more information on the advantages of owning your business property in a SMSF see this article by the SMSF Coach Liam Shorte.
If your business premises are in the name of your SMSF or if you are in the process of setting this up, keep in mind that any transactions concerning the SMSF property and yourself (or your business entity), must be made at arms’ length. This means that any transactions between your SMSF and yourself (or your business entity) must be treated as if it were a transaction between 2 unrelated parties.
For example, if you are leasing back a commercial property from your SMSF, it must be transacted on an arms’ length basis on commercial terms and documented just like any other transaction between two unrelated parties. We have a number of customers who have purchased our commercial and retail premises lease kits for this purpose to satisfy their auditors’ requirements.
Purchasing or transferring a commercial premises to your SMSF is not a standard process and is a heavily regulated area of the law, with the purpose of preserving super funds for retirement. We recommend you seek expert guidance before embarking on this route. You can find a wealth of information relating specifically to the establishment of a SMSF for the purpose of holding commercial property, at the SMSF Coach’s website here.
More information?
SMSF: Part 1 – Background and borrowing rules
SMSF: Part 2 – The process
SMSF: Part 3 – 20 most common mistakes
