Is buying and gearing your business premises through your SMSF a lucrative idea? What are its possible potholes? Let us discuss this subject matter.
Advantages of buying business premise within SMSF
- When the funds are in the accumulation phase, rents are taxable at 15%. Capital gains on the other hand are taxable at 10%. This is for properties held longer than a year. Once the funds enter the pension phase, capital gains get a tax free status.
- Trustees of SMSF like to hold the business premises within their Super for generations. In this respect, business premises held within SMSF can be a worthwhile ingredient of astute estate planning.
- Even if the individual members of an SMSF are declared bankrupt, the business premise held under the SMSF in question is free from the creditors’ clasps. The exception to the rule is when there is a claw-back provision in the Bankruptcy Act.
- SMSFs can purchase business premises from related parties. This is the only kind of real estate for which SMSFs allow these kinds of transactions. Further, the in-house asset rule of the Superannuation law permit the lease of business real estate to related parties without any limitation on its value.
Now to answer the question: Are there any disadvantages of buying a business premise within SMSF?
- In the event of failing on mortgage payments, a business premise held within SMSF is set to lose a lot more than a similar premise held outside SMSF. Capital repayments, interest repayments, and initial upfront happen to be a few such costs.
- Limited Recourse Borrowing Arrangements within SMSF come with their fair share of intricacies and they may turn out to be a trap for those who bypass professional help during the purchase.
- And what if the fund decides to sell the premise before it becomes eligible for CGT expemtion?
What is your take on buying a business premise within your SMSF?