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Using superannuation to buy your business premises: How to

As a business owner, you face the constant decision of how much to allocate to superannuation versus how much to invest in business assets such as stock, equipment and your premises.  

However, if you own your own business and also have a self managed super fund (SMSF), you can have the best of both worlds, by borrowing within your SMSF to purchase your business premises. This allows business owners to access the funds currently ‘trapped’ within superannuation, while offering the following business benefits:

  • Tax advantages: by paying rent directly to your SMSF as the owner of the property, the rental income and capital growth is retained in the concessionally-taxed superannuation environment. In some cases, this may even be tax-free.
  • Additional cash: if you already own your business premises, you can sell the property to your SMSF and release that cash, which you can then use for any purpose, including reinvesting it in your business.
  • Asset protection: by holding your business premises within superannuation, you’ll have greater protection from creditors.

The Strategy

To be able to acquire your business premises through your SMSF, it must be classified as ‘business real property’, a requirement under the Superannuation Industry (Supervision) Act 1993 (Cth). This means that the property must be used wholly and exclusively by at least one business, excluding home offices within residential properties that do not classify as ‘business real property’

Once it can be determined that the premises are exclusively for business purposes, then it’s possible to acquire your business premises from a third party or even a related party through your SMSF.  Your SMSF can than lease it back to your business at ‘arm’s length’. Importantly, though, both the purchase price and the rent must be based on fair market value. With this strategy, rent is paid, by you, directly to your SMSF, providing the added benefits of:

  • Controlled rent: this strategy allows you to effectively control your rent, protecting your business from any unexpected rent increases
  • Tax deductions: deductions are available to the SMSF for its interest and other expenses relating to the property, while the business owner gets a deduction for rent paid. The SMSF may also be able to sell the property, if necessary, without paying capital gains tax.

Another advantage of this strategy is that the SMSF can even use borrowings to repair and maintain the business premises. For example, loan funds could be used to ensure that things like the property’s plumbing and heating continue to function.

Make sure you talk to your adviser about the best strategy for your business. Aside from acquiring property directly, there are a number of other ways that an interest in real property can be owned by a super fund. There can also be some limitations to acquiring your business property through your SMSF, so make sure you discuss your specific situation with a reputable adviser.

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Chris Balalovski

Chris Balalovski

Chris is responsible for formulating technical and taxation advice for Perpetual’s clients. Chris has over 25 years’ experience in legal, tax and commercial advice. He also has specialist expertise in Australian superannuation, including DIY super funds and estate planning. Chris is a Fellow of the Taxation Institute of Australia.

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