The rule
An SMSF can acquire business real property (land and buildings used wholly and exclusively in a business) from a related party, at market value. It can then lease it to your business, as long as the lease is on commercial terms and rent is at market rates and actually paid.
Why business owners do it
- Rent paid to your fund is generally deductible to the business and taxed at concessional rates in super.
- The property sits inside a regulated trust structure.
- In pension phase, income and gains can be taxed more favourably.
Risks
- Concentration: one property can be most of your retirement savings.
- Liquidity: paying pensions or benefits can be hard if the fund is mostly property.
- Borrowing must meet limited recourse borrowing arrangement rules.
- If the business struggles, the tenant is you.
- Stamp duty, valuations and legal costs.
Also see is an SMSF right for you? and advice for business owners.
Sources
General advice warning. This article is general information only and does not take into account your objectives, financial situation or needs. Rules and thresholds change; check the sources above. Consider the relevant PDS and our Financial Services Guide and seek personal advice before acting. FinForce is authorised under Financial Force Pty Ltd AFSL 238337. Shay has been authorised since 18 October 2011.