Use Your Self-Managed Super to Own Your Business Premises

Trevor Bransdon - Praescius

By Trevor Bransdon (Praescius Financial Consultants)

Would you like to own your business premises but not sure you have the capital to do so?

You may have the capital and not realise it. Let me explain how….

Recent changes to the Superannuation Act now allow self managed super funds (SMSF) to borrow to acquire assets, subject to certain conditions being met. The conditions of the arrangement are:

• The borrowing is limited recourse – the lender’s only security is the asset purchased, other SMSF assets cannot be used as security and lenders have no right to them in the case of defaults.
• The asset is an allowable asset for an SMSF to own.
• A third party (security trustee) holds legal title to the asset on trust for the SMSF. The SMSF has a beneficial interest and a right to call for a transfer of legal title when the loan is repaid and the mortgage discharged.

This means that business owners can potentially use the funds in their super as a deposit on their business premises, and their SMSF can borrow the remainder from a lending institution in the form of a non-recourse loan, enabling the SMSF to purchase the premises.

The owner’s contributions to their super, and the rent payments from the business, can then be used to pay down the loan. There are often tax advantages associated with this strategy.

The typical SMSF borrowing structure is included below, it is often referred to as a ‘debt installment warrant’:

Owning your business premises in your SMSF fund provides a number of potential advantages. These are included below:

• Assets in SMSF’s attract concessional tax rates:
  • All income is taxed at the rate of 15%, which is often less than marginal tax rates;
  • When assets owned by super funds are sold, any realised capital gains are concessionally taxed;
  • If the assets have been transferred to pension phase then any income they earn or any capital gains realised are tax free.
• Instead of the business paying rent payments to a landlord, rent payments can be paid by the business to the SMSF. These funds can then work for the business owner in their SMSF by paying down the loan or providing additional funds for investment.
• Assets held in a SMSF have an additional layer of protection from creditors in the case of bankruptcy.

If you would like further information regarding this strategy please contact a financial advisor like Praescius Financial Consultants.

General Advice Warning

The advice contained above does not take into account any persons particular objectives, needs or financial situation.  Before making a decision regarding the acquisition or disposal of a Financial Product persons should assess whether the advice is appropriate to their objectives, needs or financial situation.  Persons may wish to make this assessment themselves or seek the help of an adviser.  No responsibility is taken for persons acting on the information provided.  Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.

Trevor Bransdon is an Authorised Representative of Godfrey Pembroke Limited ABN 23 002 336 254, an Australian Financial Services Licensee and member of the National Group of companies.  From time to time members of the National group of companies, associated employees or agents may have an interest in or receive pecuniary and non pecuniary benefits from the financial products and services mentioned herein.