One of the benefits of having a SMSF is the ability to purchase direct property using your super. However, property is not limited to just a residential house or unit - it can also include commercial property.
If you have a SMSF and you are a small business owner, you may be able to purchase a commercial property in your SMSF. This assumes it meets certain criteria – see below. As trustees, you may decide to purchase your own business premises. This can provide many benefits including control over the building maintenance and fitout. It also means you have a guaranteed rental income for as long as you run your business from the property.
Trustees of SMSFs may also decide to purchase an unrelated business office or warehouse. Milestone Lending believes that commercial property can be a worthwhile option for many SMSF trustees. “Commercial property in your SMSF has many benefits. Tenants often stay long term because they want the customers to know where they are. So they don’t move often.” Jake from Milestone Lending says. Depending on the lease, the tenants may pay for the fitout and the outgoings. This means as owner, the expenses may be lower than a residential property. “Lenders will allow you to borrow around 75% of the value of the property. The yield, or the rental income, is usually quite strong with commercial property”, Jake notes.
If you want to purchase a commercial property in your SMSF, there are restrictions. For example, the premises must meet the business real property definition, and the property must be acquired at market value. The property must also be wholly and exclusively used in a business. It is also important to remember that the purchase must meet the fund’s sole purpose test. This means the main reason for buying the property is to provide retirement benefits to its members. As such, the investment return from the property, through both rental income and capital growth, must be the sole focus for making the investment.
If you are purchasing your own business premises through your SMSF, and you or a related party of the fund (which includes most relatives and associated businesses) currently owns the business property, the purchase price must be at market value. In addition, if there is a tenancy agreement between the fund and the business it should be based on current market practice and prices.
As an alternative to your SMSF buying your business premises, you may also be able to transfer the property into your fund as an in specie (non-cash) contribution.
We recommend that you speak to your Milestone Financial planner to help you decide if buying property through your super fund is right for you.
