For all the discussion around proposed superannuation changes recently, one strategy continues to stand out for many business owners.
Buying your business premises through a Self-Managed Super Fund (SMSF).
Despite the headlines, using an SMSF to buy business real property is one of the most powerful ways business owners can use their super to build long-term wealth.
In fact, it’s something we’re seeing more and more of at HKW Finance.
Just recently, we’ve been working with a business owner purchasing their industrial unit through their SMSF. Rather than paying rent to a third-party landlord, they’ll soon be paying rent to their own super fund.
For the right business, it’s a strategy that can deliver benefits today while also strengthening retirement outcomes decades down the track.
So, what is business real property?
Business real property is generally commercial property that is used wholly and exclusively in a business.
That could include:
- Warehouses
- Factories
- Industrial units
- Offices
- Medical suites
- Retail premises
Unlike residential property, SMSF rules allow your business to lease this property from your own super fund, provided everything is done at market value and complies with the relevant regulations.
That distinction is what makes the strategy so attractive.
Benefit 1: You become your own landlord
Most business owners know what it’s like to receive a lease renewal with a rent increase.
Or worse, be told the property is being sold and you have to move.
Owning your premises through your SMSF gives you far greater certainty.
You still pay rent, but you’re no longer building someone else’s wealth.
Instead, you’re creating stability for your business while building an asset for your retirement.
For many business owners, that’s a significant shift.
Benefit 2: Your rent helps build your retirement
Every month your business needs somewhere to operate.
For most businesses, rent is simply another expense.
When your SMSF owns the property, those rent payments don’t disappear.
They’re paid into your super fund at market rates, helping grow your retirement savings.
For many business owners, this can be particularly valuable.
And let’s be honest, business owners are often fantastic at reinvesting in their businesses but not so consistent when it comes to contributing to their super.
Owning your commercial premises inside an SMSF can help address that over the long term.
Benefit 3: The tax treatment can be incredibly powerful
While tax should never be the only reason for making an investment decision, it would be hard to ignore the potential benefits here.
Generally speaking, rental income received by the SMSF is taxed at 15%.
Then, once the fund moves into retirement phase and the relevant conditions are met, capital gains tax on the sale of the property may be nil.
That’s one of the reasons this strategy has remained so popular for business owners over many years.
Of course, tax legislation changes regularly, so it’s important to seek advice from your accountant before making any decisions. The above information cannot be construed as tax advice and is general information only.
Is it right for every business owner?
Not necessarily.
Like most lending strategies, it depends.
Not only does your business needs to be in a position to support the purchase.
But even more importantly, you need to speak to a financial advisor to see if an SMSF is even right for you in the first place.
But when those pieces come together, the long-term benefits can be significant.
Thinking about buying your commercial premises?
If you’re currently leasing your warehouse, office, factory or other commercial premises, it’s worth exploring whether purchasing it through your SMSF could work for you.
The finance structure is only one piece of the puzzle, but getting it right from the beginning can make a significant difference over the long term.
If you’d like to explore whether it’s a viable option, feel free to get in touch.