Buying a commercial property in your SMSF

Melissa Coggan - Monday, June 05, 2017

One of the benefits of having a SMSF is the ability to purchase direct property using your super. However, property is not limited to just a residential house or unit. As trustees, you may also decide to purchase commercial property – such as your own business premises or an unrelated business office or warehouse.

There are restrictions, including that the premises meet the business real property definition, and the property is acquired at market value. The property must also be wholly and exclusively used in a business.

Ashley Crowther from Milestone Lending believes that commercial property can be a worthwhile option for many SMSF trustees. “Commercial property has many benefits - tenants often stay long term because if they are growing their business they want the customers to know where they are, so they don’t move often.” Ashley says.  In addition, depending on the lease, the tenants may pay for the fitout and the outgoings, so expenses may be lower than a residential property. “Lenders will allow you to borrow around 75% of the value of the property and the yield, or the rental income, is usually quite strong with commercial property”, Ashley notes.

It’s important to remember that such a purchase must meet the fund’s sole purpose test of providing retirement benefits to its members, or a benefit to their dependants if a member dies before retirement. As such, the investment return from the property, through both rental income and capital growth, must be the sole focus for making the investment.

Where a fund buys an existing business property from you, or a related party of the fund (which includes most relatives and associated businesses), the purchase price must be at market value. In addition, if there is a tenancy agreement between the fund and the business it should be based on current market practice and prices.

As an alternative to your fund buying your business premises, you may also be able to transfer the property into your fund as an in specie (non-cash) contribution.
We recommend that you speak to your Milestone Financial planner to help you decide if buying property through your super fund is right for you.

This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information. AMP Advice is a registered trade mark of AMP Limited, licensed to Milestone Financial. Milestone Financial Services Pty Ltd (ABN 68 100 591 508) is an authorised representative and credit representative of AMP Financial Planning, Australian Financial Services Licensee and Australian Credit Licensee. Example of Lending criteria noted by Ashley Crowther only - terms and conditions will vary depending on lender and client situation.