One of the main advantages of having your own self managed superannuation fund (SMSF) is that you have control over the investments of the fund.
This not only enables you to select the bank accounts, shares or property that you prefer, but for those in business, it also provides an opportunity to take advantage of the ability to transfer business properties into your self managed superannuation fund.
SMSFs are subject to strict investment rules. One of these rules is that assets cannot generally be acquired by a SMSF from a member or related party. An important exception to this rule, however, is that “business real property” can be acquired from a related party.
“Business real property” refers to property that is used in one or more businesses, and it is not necessary that the business is carried on by the owner of the property. Examples of business real property which could be transferred into a related SMSF would be farm land (which may include a private residence up to 2 hectares in area), or a doctor’s surgery, or shops leased to a number of different unrelated entities.
There are a number of advantages of transferring ‘business real property’ into your SMSF:
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Rental income will be taxed a maximum rate of 15%. When in ‘pension mode’ the income will be tax free. Meanwhile the business can continue to claim a tax deduction for the rental payments at their marginal tax rate.
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If the business takes a cash payment for the transfer of the property, this may assist the business with cash flow or borrowing commitments.
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If the property is transferred to the superannuation fund and the business does not receive a cash payment the level of assets held in a tax effective environment are increased.
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Property with the self managed superannuation fund are protected from creditors in the event of bankruptcy.
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There will be no capital gains tax on the transfer of the property if the small business concession rules are satisfied.
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If the property is sold when the fund is in ‘pension mode’ any capital gains will be tax free. This may not be the case if the property is sold after the business has been sold and the property ownership remains in another structure.
There are, however, some issues to be aware of:
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Stamp duty will be payable on the transfer of the property to the SMSF
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Lack of flexibility – rental payments to the fund must be done at market value
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Additional administration – a lease agreement is required and property market valuations must be completed at least every three years
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Once inside the SMSF, the property can no longer be used as a security for any borrowing.
If you are interested to find out more about transferring business real property into your SMSF, please contact our team at Super Retirement Solutions, phone 4632 1966 or email srsadmin@mcconachiestedman.com.au. 