Can a medical professional buy their rooms through an SMSF?

The SMSF establishes a bare trust to hold the property, borrows from an SMSF lender, buys the rooms, and leases them to the practice entity at a rent supported by an independent rental valuation. The practice claims the rent as a deduction; the fund receives it as income taxed at 15 per cent, or tax free in pension phase, and any capital gain on sale is concessionally taxed. The fund cannot use borrowed money to improve the rooms, so fit-out works have to be funded by the practice as tenant or by the fund's own cash.

A corporate trustee, a compliant deed, the bare trust, the fund's financials and contribution history, the practice's financials as the tenant, and personal guarantees from the members. LVR is 60 to 70 per cent for most SMSF commercial lenders, occasionally 75 for a strong medical tenant. Most lenders do not apply medico policy inside super, so the residential 95 per cent benefits do not carry across. Interest rates are higher than direct commercial lending and lender choice is limited.

A practitioner who already owns the rooms personally or in a company can sell them to the SMSF, because the business real property exception allows acquisition from related parties. The sale triggers stamp duty in most states and capital gains tax for the vendor, so the numbers need modelling before the transfer, but it is a way to move an asset into the concessional super environment and release equity to the practitioner.

If the rooms are part of a larger building with residential use, the business real property test can fail. If the fund lacks liquidity to service the loan when the practice cannot pay rent, lenders will decline. If the member is near or above the $3 million balance where the additional Division 296 tax applies, the fund's adviser will want to look at the numbers first. And the fund cannot borrow to build or substantially renovate.