A common question I get asked is “can I buy a commercial property in my self-managed superannuation fund?”
This is usually followed by a number of other questions about whether the property purchase can be financed, and if the property can be leased to a related party. So below we answer this question, along with more common questions about commercial properties.
Can I buy a commercial property in my self-managed superannuation fund (SMSF)?
Yes, as long as this type of investment is allowed under your superfund deed and investment strategy.
Can I run my business from the commercial property owned by my SMSF?
Yes, provided that the entity leasing the property from your SMSF does so on commercial terms i.e. pays market rent and enters into a lease agreement with typical terms and conditions.
Can my SMSF borrow money to fund the purchase of a commercial property?
Provided that it is allowed by your SMSF deed and investment strategy, SMSFs are able to borrow money under a Limited Recourse Borrowing Arrangement to fund the purchase of a commercial property.
The SMSF will borrow from a bank or other lender on commercial terms. Only some banks offer Limited Recourse loans, and they usually require a higher deposit than they would for other investment property purchases. The loan term will also often be shorter.
How does a Limited Recourse Borrowing Arrangement work?
A “Bare Trustee” company is set up and will be the legal owner of the property, on behalf of the SMSF. It is important that the purchase contract and bare trust deed are executed correctly, as an error can result in double stamp duty being charged in NSW.
For accounting and tax purposes, the property is treated as being an asset of the SMSF. Legal ownership of the property transfers to the SMSF upon repayment of the Limited Recourse loan.
I currently own a commercial property personally. Can I transfer this to my SMSF?
Commercial properties are considered to be “business real property”. Unlike residential property, business real property is able to be transferred from a member to their SMSF.
Your commercial property may be sold to your SMSF (note that it must be sold on commercial terms i.e. at market value) or it may be transferred as an in specie contribution, subject to your contribution caps. As with any transfer of real property, there may be stamp duty and/or capital gains tax implications to be considered.
A commercial property is a viable investment opportunity for most SMSFs, and owning your business premises in your SMSF can be a great way to build wealth for retirement. As with any investment, you will need to make sure that it is appropriate for your circumstances, and we recommend that you speak to a trusted business adviser prior to entering into a commercial property purchase.
If you would like advice about entering into a commercial property with your SMSF, or any other accounting matters, the team at BLG Business Advisers is happy to help you. Get in touch with our experienced and skilled people online or call (02) 4229 2211 to discuss your specific needs.