Can my SMSF buy my business premises from me?

The business owner releases equity from the premises into their own hands, often to reduce personal debt or fund the business, while keeping the premises under their control through the fund. The rent the business pays becomes a deductible expense to the business and concessionally taxed income to the fund. The property grows in the super environment, with capital gains taxed at 10 per cent after twelve months in accumulation phase or nil in pension phase. And the premises are protected from business creditors.

The property must be business real property: used wholly and exclusively in one or more businesses, which can include the member's own. Farms with a residence can qualify with limits. The sale must be at market value, evidenced by a valuation. The lease must be on arm's length terms with market rent, reviewed and actually paid; a business that stops paying rent puts the fund in breach. The fund must have the borrowing structure in place if it is borrowing, and the acquisition must fit the fund's investment strategy.

SMSF commercial lenders will fund the purchase at 60 to 70 per cent LVR, assessing the business as the tenant, the fund's liquidity and the property. Because the tenant is a related business, lenders scrutinise the business financials closely and want to see that the rent is affordable. The vendor often uses the sale proceeds to pay down the existing debt on the premises, and the two settlements are coordinated.

The vendor triggers a capital gains tax event at market value; the small business CGT concessions may reduce or eliminate the gain for eligible vendors, and this is often the reason the transaction is timed with an accountant. Stamp duty is payable by the fund at normal rates in most states, though some states offer relief for transfers to an SMSF where the beneficial ownership is substantially unchanged. GST applies if the vendor is registered and the sale is not a going concern. The numbers have to be modelled before deciding.