Can I buy a commercial property with my SMSF?
Are you considering purchasing commercial property in your SMSF and wonder if it meets the regulations of SMSFs set by the ATO? Continue reading for a full explanation on purchasing business real property with your SMSF.
Business real property complies with the guidelines set out for SMSFs. This property may be a farm or a shop. According to the rules of superannuation investments, SMSFs can purchase business real property from fund members which also allows fund members to use their assets if they decide to. For a lease to comply with SMSF rules the rent must be at market value and meet the terms and conditions of a normal lease. On the other hand a residential property cannot be purchased from fund members even if you intend to use it to run a business.
SMSF may buy property in specie
Under the rules of a SMSF business real property can also be transferred in as non-cash contributions (often referred to as ‘in-specie’) which fall under contribution caps as well as any small business retirement exemptions that may exist. If you seek financial and tax advice you may be able to avoid unnecessary tax.
It is the person who owned the asset is responsible for capital gains tax and not the SMSF. Stamp duty is payable on commercial property transactions in some states. We advise you to check with your State Revenue Office on specifics about stamp duty in your state.
According to government regulations property obtained by a SMSF needs to be in the name of the SMSF or the name of trustees of the SMSF. In the event that state laws don’t allow property to be in the trustees name then the SMSF can make a declaration of trust to confirm the SMSF’s interest in the property.
This information is only in regards to business real property and not the license that might come with such business property, eg. a bank, a post office, a factory, a pharmacy, etc.
Can money be borrowed to finance property in a SMSF?
Under current rules a SMSF cannot borrow directly to finance real estate though the rules are changing and allow for indirect borrowing through a limited borrowing agreement.
Super fund borrowing to buy real estate
Under the terms of a limited recourse borrowing agreement a SMSF must agree to pay installments when obtaining an asset. Borrowing within the geared structure is used to obtain the asset and is held on trust by the provider of a loan. The beneficial interest and a right to purchase the asset and interest are held by the SMSF trustee. You are not allowed to use other SMSF assets as a security agains this loan.
The loan that may have existed for original purchase of this SMSF property must be cleared before a purchase can be made by the SMSF. For example, if you had a mortage to secure the property and you now want to buy this same property in SMSF, you must fist clear that mortgage. The loan is could be repaid on settlement or transfer but be careful that the bank you are dealing with knows the difference between the fund’s ownership and loan liability and individual ownership and liability.
Learn more about borrowing to finance property in a SMSF from iMoney Wealth Management by reading our FREE guide on SMSFs.
To learn more about commercial property for your SMSF download our FREE book or ask us a question online.
.png)
.png)