SMSF commercial property investments
Did you know that the maximum number of members allowed in a self-managed super fund (SMSF) recently increased from four to six?
The Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 came into effect on 1 July 2021 and while it’s not expected that there will be a sudden increase in the number of SMSFs, it does provide new opportunities and more flexibility.
If you have more people in a self-managed fund it can mean more investment capital, and this could open the door to some uniquely tailored options.
One of these includes SMSF commercial property investment. Today, we take a look at this strategy and highlight some of the benefits… especially for business owners.
“Commercial property inside an SMSF can combine long-term growth with stable income when structured correctly.”
SMSF investment options
Most standard super funds – such as retail or industry funds, have specific investment strategies that they implement on your behalf… but with an SMSF you have the ability to select exactly what you invest in across a wide range of asset classes.
These asset classes include:
- shares – both Australian and international
- property – residential or commercial
- physical commodities – such as metals and minerals, agricultural or energy
- cash and fixed income products – such as term deposits or bonds
- collectables – such as artwork, antiques or jewellery.
When you invest in property through your SMSF there are some rules that must you must follow.
The Government’s Moneysmart website states:
“You can only buy property through your SMSF if you comply with the rules.
The property must:
- meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- not be acquired from a related party of a member
- not be lived in by a fund member or any fund members’ related parties
- not be rented by a fund member or any fund members’ related parties
If your SMSF purchases a commercial premises, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules.”
Investing in commercial property
Choosing to invest in a commercial premises presents an array of benefits… especially if your business becomes the tenant of the SMSF investment property. If you execute this correctly, it can help to reduce your business overheads and boost your long-term cash flow.
Knowing that your SMSF owns the property gives you confidence that your landlord won’t terminate your commercial lease or unfairly inflate rental prices above market value. Plus, when your business pays rent… it will be paying the money directly to your SMSF, which can help your retirement fund grow.
While this sounds straightforward, it can be a complex process so it’s important that you engage a professional to guide you through the creation of your SMSF and through the purchase of your commercial property investment.
“SMSF commercial property can be particularly effective when aligned with a clear retirement and business strategy.”
Tax implications
As with any property investment, there are tax implications you need to be aware of… but within the SMSF environment you can can considerably reduce these tax liabilities.
Firstly, the commercial rent your SMSF receives – the investment earnings – is subject to a 15% tax rate as opposed to your marginal tax rate if you held the property outside of super.
The capital gains tax is also lower as it drops to just 10% if you hold the property for more than 12 months.
Plus, once the SMSF members enter their pension phase or they meet a condition of release, you can potentially sell the property without incurring any capital gains tax.
Seek professional advice
Purchasing commercial property through your SMSF can offer many benefits to your fund members but can be a daunting task. We always recommend seeking professional advice to make sure it is an appropriate superannuation strategy for your personal circumstances.
Here at North Advisory, we believe the smart way to successfully administer your SMSF is to use one trusted advisor. Contact us today to learn more about our complete SMSF management solution.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Commercial Property Can Suit SMSFs Well
It offers potential for long-term growth and steady rental income aligned with retirement objectives.
Related-Party Leasing Is Allowed
Leasing commercial property to your own business is permitted if conducted on arm’s-length terms.
Borrowing Adds Opportunity and Risk
LRBAs can accelerate investment but increase complexity and require careful cash flow planning.
Driven by our values
Effortless and Seamless
On-Boarding Process
Intuitive and Knowledgeable
Direct Expert
Access
Useful and Articulate
Financial
Reporting
Forward
Thinking
Compliance Solutions
Streamlined
Tech
Integrated and Automated
Frequently Asked Questions
Can an SMSF invest in commercial property?
Yes. SMSFs are allowed to invest in commercial property, provided the investment complies with superannuation laws and the fund’s investment strategy.
Can my business lease a commercial property owned by my SMSF?
Yes. Unlike residential property, commercial property owned by an SMSF can generally be leased to a related business at market rates, subject to strict rules.
Can an SMSF borrow to purchase commercial property?
Yes. An SMSF may use a limited recourse borrowing arrangement (LRBA) to buy commercial property, although borrowing adds complexity and risk.
What are the tax benefits of SMSF commercial property?
Rental income is generally taxed at 15% in accumulation phase, and capital gains tax may be reduced or eliminated once the fund enters pension phase.
Should I get professional advice before investing?
Absolutely. SMSF property investments involve legal, tax and compliance considerations that require specialist advice.
Why do so many SMSFs prefer commercial property over residential property?
Commercial property offers more flexibility for SMSFs, particularly because it can be leased to a related business at market rates, which isn’t allowed with residential property.
North Advisory’s Reviews 
On 
Flo Mitchell
4 weeks ago
Changed to this company in 2019 from former accountant and love their approach of organizing everything for me face to face with Xero set up plus being able to call as much as I need for set annual fee. They also picked up on something that was not done correctly by my former accountant and saved me $4k for this.
Timothy Cummins
A month ago
They the truly the best, Martin and Judy are so experienced, knowledgeable & professonal, also quite like speaking with Rose : ) all people are so lovely!
Michael Iera
2 months ago
Positive, Responsiveness, Quality, Professionalism, Value
Michael Iera
2 months ago
Excellent company in regards to service and professionalism. Very experienced in dealing with complex matters. Highly recommended.
Reach out we are here to help
Recognising the uniqueness of each business, we specialise in customised accounting services crafted to meet your specific needs and drive business growth.
Don’t hesitate to contact us if you’re ready to streamline your financial management with tailored solutions. Your business’s success is our primary focus. Fill in the contact form or call us to book an initial 30-minute chat.
Suite 6, 11 Oaks Avenue
Dee Why, Northern Beaches
NSW 2099
Australia