Buying property in super has long been a popular choice for both families and business owners looking to leverage the tax effective property investment opportunities available to SMSFs. There are multiple ways to do this depending on your individual goals and circumstances.
Investing in property through an SMSF can have several advantages including tax concessions and potential to build wealth. But investing in property through superannuation is complex and highly regulated and requires a team of experts to help ensure that your SMSF property purchase is a well-informed decision.
From understanding the strict compliance requirements of the Sole Purpose Test and related party rules to managing property acquisition costs and lending needs, Findex has a holistic team of accountants, financial advisers and lending experts working together, to manage every stage of the SMSF property investment journey with you.
If you’re a business owner, your business premises is likely one of your most valuable assets. A Self-Managed Super Fund (SMSF) can provide an opportunity to include that property as part of your retirement strategy.
Where the rules allow, an SMSF can purchase commercial property and lease it back to a related business on commercial, arm’s length terms. In some circumstances, the fund may also be able to acquire an existing business property that you already own.
For the right business owner, this strategy can combine long-term wealth creation and greater business certainty, while taxing rental income and capital growth more favourably than holding the property personally.
Like most SMSF strategies, however, the opportunity comes with important rules and considerations. Understanding how the strategy works before entering into a contract is critical.
An SMSF can borrow to purchase eligible Business real property using a Limited Recourse Borrowing Arrangement (LRBA).
For business owners, this can provide a pathway to acquire business premises where the fund does not have sufficient capital available to purchase the property outright.
While the rules governing SMSF borrowing have become more targeted over time, eligible commercial property that qualifies as Business Real Property can still be acquired using an LRBA. This means business owners continue to have access to an established strategy for acquiring business premises within superannuation.
LRBAs are highly regulated and require the correct ownership structure, lending arrangements and ongoing compliance from the outset. Getting the structure right before entering into a contract is essential, as rectifying an incorrectly implemented arrangement can be complex and expensive.
Purchasing business property through an SMSF can be an effective long-term strategy, but it is not suitable for every business owner or every SMSF.
It is important to consider:
Whether the property qualifies as business real property as defined in the SIS Act.
Whether the acquisition and lease arrangements comply with superannuation rules.
Whether the fund has the capacity to support the investment over the long term.
Whether the property aligns with the SMSF’s investment strategy.
The impact of borrowing, liquidity and concentration risk within the fund.
The decisions made before signing a contract can have significant long-term consequences. Ensuring the structure is appropriate from the beginning is essential.
Purchasing business property through an SMSF can be an effective way to build long-term retirement wealth while providing greater certainty for your business. However, the right outcome depends on your objectives, financial position and the circumstances of your SMSF.
If you are considering buying business property through your SMSF, or would like to understand whether your existing premises may qualify as Business Real Property, speak with one of our SMSF specialists before entering into a contract.
An early conversation can help you understand your options and identify whether this strategy is suitable for your circumstances.
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