Buying Commercial Premises Through Your SMSF

For business owners with a self-managed super fund (SMSF), buying your business premises through super can be an attractive option. Your business pays rent to your own fund instead of a landlord, and the property is held in a concessionally taxed environment. It’s also one of the most heavily regulated property purchases you can make, so it has to be done properly.

How it works

Your SMSF buys the commercial property, either with cash already in the fund or with a loan. Your business then leases the property from the fund and pays rent, which becomes income for your super.

Borrowing through your SMSF

If the fund borrows, it must use a limited recourse borrowing arrangement (LRBA). Key rules include:

• Limited recourse: if the loan defaults, the lender can only claim the property, not other fund assets
• Single acquirable asset: the loan must be used to buy one asset, such as a single property on one title
• Holding trust: the property is held in a separate trust until the loan is repaid
• Repairs, not improvements: borrowed money can fund repairs and maintenance, but not improvements that change the property’s character

Fewer lenders offer SMSF loans than standard commercial loans, and they usually require a larger deposit and set limits on the loan term and LVR.

Leasing to your own business

Business real property can be leased to a related party, such as your own company or trust. The lease should be on commercial terms at market rent, with a formal lease agreement, and rent must actually be paid on time.

The advantages

• Rent goes to your own super instead of a third-party landlord
• Rental income and capital gains are taxed concessionally inside super
• Greater control over your premises and lease

The risks

• A large share of your retirement savings is tied up in one asset
• Property can be hard to sell quickly if the fund needs cash
• If your business struggles, both your premises and your super are exposed
• Setup, legal, accounting and borrowing costs are higher than a standard purchase

How a broker helps

We work with lenders that offer SMSF commercial property loans and coordinate with your accountant and solicitor so the loan, the holding trust and settlement line up. Read how much deposit you need for a commercial property loan and learn about our commercial property finance.

Peak Capital does not provide financial product or superannuation advice. Seek independent advice about whether an SMSF property investment is right for you.

Frequently asked questions

Can my SMSF buy property from me or my business?

An SMSF can generally buy business real property from a related party at market value, provided the property is used wholly and exclusively in a business. It generally cannot buy residential property from a related party.

Can my business rent premises owned by my SMSF?

Yes. Business real property can be leased to a related party, such as your own business, but the lease should be on commercial terms at market rent and properly documented.

How much deposit does an SMSF need to buy commercial property?

SMSF lenders usually lend a lower percentage of the property’s value than standard commercial loans, so the fund typically needs a larger deposit plus costs. The amount depends on the lender and property.

This article is general information only and doesn’t take into account your objectives, financial situation or needs. Speak to us or your accountant before making a decision.