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A Guide to Purchasing Commercial Property Through Your SMSF

Article By Adam Camac | | General News

You may have heard about the benefits of buying commercial property through your self-managed super fund (SMSF). However, before you dive in headfirst, it’s important to understand exactly what’s involved.

Advantages of Buying Commercial Property Through Your SMSF

There are several advantages to purchasing commercial property through your SMSF:

Tax effectiveness: The 15% superannuation income tax rate makes SMSF property investment a tax-effective option.

Quicker asset growth: By paying rent to yourself instead of a landlord, you can grow your SMSF more quickly.

A clever way to pay off your assets: Holding your business premises in your SMSF name and renting it out to your business can be an effective way to pay off your assets.

Increased asset protection: As your business is a separate entity from your SMSF, SMSF property investment can provide increased asset protection.

Secure tenancy: As the property is held by your SMSF, you have a secure tenancy in the property.

Who Should Consider SMSF Property Investment?

SMSF property investment is particularly useful for two specific groups of people: business owners and medical professionals who run their own clinics.

Business Owners:

As a business owner, the flexibility of the SMSF structure allows you to purchase your business property through your SMSF. For example, you can purchase an office for your business and borrow the money within your SMSF to buy the office under your SMSF’s name. Your SMSF can then rent the space out to your business, and your business can claim this rent as a business expense. This means your SMSF is using your rent to pay off the loan, and your rent goes directly to your SMSF as income.

Medical Professionals:

Buying medical premises is a popular strategy for medical professionals, such as doctors and dentists. In a medical practice where there are several medical professionals working together, each professional is likely to have a considerable amount in their super. This gives them the flexibility to diversify their super assets into commercial property. For example, three doctors can work together at a medical practice, and each SMSF can hold 33.3% of the units in a unit trust. When they pay the service fee each month, this money is deposited into the unit trust, which is then distributed between their SMSFs.

How SMSF Property Investment Works

To get started in the SMSF property market, there are several steps you need to follow:

  • Ensure you have the correct balance for a commercial property purchase.
  • If you’re borrowing to buy a commercial property, you should expect to have a deposit of between 30%—40%, plus stamp duty.
  • If you’re borrowing to buy a commercial property, it needs to be under a limited recourse borrowing arrangement (LRBA).
  • To set up an LRBA, you first need to set up a bare trust within your SMSF.
  • Select the property you want to purchase, and ensure you can afford it, either via lending or a cash payment.
  • Set up a commercial lease arrangement and document it with a lease agreement.
  • Ensure the correct amount of rent is paid on time each financial year, and your SMSF remains compliant.

SMSF Property Purchasing Options

There are several SMSF property purchasing options, including cash purchase and unit trusts. Our expert advisers can help you determine which option is right for you.

At Altitude, we’re here to guide you through the process of SMSF property investment. Our team of expert advisers can provide you with the support and guidance you need to make informed decisions about your investments.

Contact your adviser to learn more about navigating the complex world of SMSF property investment.

Altitude Financial Planning is a Corporate Authorised Representative of Altitude Financial Advisers Pty Ltd

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