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The Virtues of Business Real Property and your SMSF.

Written and accurate as at: Aug 18, 2015 Current Stats & Facts

Given the recent lack of confidence in share markets and underperforming superannuation accounts, many individuals have seen the requirement to shift their superannuation to the more self controlled environment of self managed superannuation funds (SMSF). Business owners are particularly interested in this rapidly growing area for greater control of their retirement funds, the flexibility of investments allowable in a SMSF structure and the ability to contribute or sell, (depending on their cash flow circumstances) their business premises into the SMSF.

Legislation governing SMSF, the Superannuation Industry (Supervision) Act (SIS) currently only allows a SMSF to acquire from a related party two types of assets. These assets are listed securities and business real property.

Business real property is defined as any freehold or leasehold interest of the entity in real property where the real property is used wholly and exclusively in one or more businesses (whether carried on by the business or not). Any business owner should seek professional advice to ensure that the property satisfies the requirements of the business and is tested against the definition of business real property prior to any transfer occurring.

Benefits of transferring business real property into the superannuation environment can be to:

  • access superannuation funds prior to retirement by way of a cash purchase by the SMSF,
  • to take advantage of a better tax environment (15% tax rate while members are in accumulation phase or 0% tax rate when members are in pension phase),
  • to protect the business real property if the business fails,
  • to boost retirement funds and
  • lower assets held personally.

Timing of property transfers into a SMSF can be critical from a capital gains tax perspective. Transfers of business real property purchased from related parties must be transferred at current market values as if the transaction was to occur at arms length. This requirement does not allow for market value manipulation and heavy penalties could apply if any transfer value didn’t stand up. Obviously higher market values on transfer can result in an increased capital gain.

Transfers of this nature can occur utilising excess cash currently within the SMSF, this is known as a cash purchase. The other way it can occur is via an in-specie transfer (not for cash). There are rules that govern these transactions so be sure to get professional advice.

Recently, some state revenue departments have not applied stamp duty to in-specie property transfers whereby no cash has changed hands. This saving can make transferring the business premises into a SMSF more attractive and this can be an expensive component of a property transfer. It should be noted that stamp duty is a state tax with no uniformity between states. It is suggested that legal advice should always be sought when dealing with complicated transfers.

Like with all SMSF investments, a long term view should always be taken and any investment should be made with the appropriate professional advice.

Anthony Flapper, Partner and Head of Private Wealth at Matthews Steer Chartered Accountants has over 15 years of practising experience to find out more contact 9325 6300 or email info@matsteer.com.au.  

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