Business premises and your super fund
Holding a business property in a Self-Managed Superannuation Fund (SMSF) has a number of advantages for its members.
Aside from the potential for positive returns through rental income and capital growth inside your SMSF, assets held in SMSFs are usually very well protected from creditors in the case of bankruptcy (provided it is not held to be a contribution made to defeat creditors) and other business risk.
If you hold a property in your own name and are looking to transfer it into a SMSF, the transfer must comply with relevant Superannuation legislation. One requirement is the property must be ‘business real property’ – an interest in land which is used wholly and exclusively in one or more businesses, such as a commercial office or retail shop. This definition does not extend to residential rental property.
Before embarking on the transfer process, a legal review of the deed and any relevant variations will be required to ensure that the transaction is allowed under the provisions of the SMSF deed. You should also consult your financial adviser to ensure that the transaction is in line with the investment strategy of the SMSF and for advice on any tax implications.
Because a SMSF may only purchase business real property from its member/s at market value, you will need to engage an independent valuer to provide a report on the property value. Following the transfer, any subsequent lease of the property to a member or related entity will need to be on commercial terms, governed by a legally enforceable lease agreement and at market rates.
Nominal duty of $50 is payable on a transfer of business real property into a SMSF, but only where the transferor (i.e. you) is the sole member of the fund or the property is to be held solely for the benefit of that member. Further, the property must be used solely for the purpose of providing a retirement benefit to that member. If you are not the only member of the fund, the concession may still be available to you, provided that you can show that:
- the property is held specifically for your benefit as a member of the fund;
- the property (and all proceeds from the property) will not be pooled with property held for another member; and
- no other member can obtain an interest in the property.
If the SMSF does not have sufficient reserves to fund the transaction it may borrow funds for the purchase, subject to the strict limited recourse borrowing rules.
Both the sale and borrowing transactions need to be properly and accurately documented. We are able to assist you with every aspect of the transfer and loan process, including providing detailed review and variation of SMSF deeds, explanation of the relevant legislation, preparation of bare trust documents to support the limited recourse facility and preparation and lodgement of the transaction documents for stamping. Please contact our commercial and property law team on 4925 2077 for further information or assistance.