Buying a commercial property to put in your SMSF
On occasions businesses may rent premises or they may be owned by an owner. If the owner for whatever reason decides it is appropriate to transfer the business premises in to the superfund. Before you do that you need to obtain some advice from your accountant and financial advisor. There are a few simple steps that need to be thought about. They are:
- What is the value of the property to be transferred? Get a valuation from a licensed valuer. This is important so that in the event that any queries are raised by the Taxation Office, the valuation will be available.
- What is the appropriate market rent? The valuer should do the market rental.
When you have your superfund audited each year, the auditor will want to be able to see that the rent being paid by the business into the superfund is the appropriate market rent.
Keep these original documents in a safe place. If you are ever audited by the tax office it is important to have those documents in the original form.
Important if you are putting a lease in place:
There should be formal lease in place between the superfund and the business. The lease would usually run for a period of three years with perhaps an option to renew. The lease should contain market reviews.
At each time a market review takes place, which is probably at the beginning of each option period, then you should obtain a valuation for what the market rental will be.
All these valuations are expensive, but it does offer you some protection should the auditor of the superfund or the taxation office make some queries.
How is the rent paid?
It is possible to have rent paid directly in to the superfund each month. Some businesses may elect to pay rent in advance. If you decide to pay rent in advance you should always get your advice from the superfund’s accountant.
As a word of caution, it may be appropriate to have the accountant that manages the superfund different from the accountant responsible from your own personal taxation returns.
The most important thing that any trustee of a superfund can do is ensure that they have a complying fund, hence all the checks and balances are in place.
Buying residential property to be put in your SMSF
It is not possible to buy a residential property as the beneficiary or trustee of a trust to put into the superfund. It must be an arms’ length transaction. On occasions superfund and their trustees may wish to engage a buyer’s agent. Buyer’s agents are able to help those trustees to make sure they get the appropriate arms’ length transaction.
Otherwise if the trustees or directors of a fund by a property on the open market, at auction or by way of a negotiated sale, it is an arms’ length transaction.
How is the purchaser described on the contract?
The trustees of a SMSF may be an individual or a corporation. It is necessary to have it shown on the front page of the contract the name of the superfund, for example “JC Brown Pty Ltd as the Trustee of the John and Claire Brown Superannuation Fund”.
If you describe the purchaser in this way it is clear the company is purchasing the property on behalf of the superfund.
What you must not do is merely describe the name of the trustee, not their capacity as the trustee of the superfund.
You should ensure that you do not do the following regarding the contract:
Purchaser “JC Brown Pty Ltd ACN ___________”.
It is worthwhile making sure the trustee of your superfund is registered for GST. It is also worthwhile ensuring that the trustee of the fund in its own capacity and its capacity as a trustee of the superfund is registered for GST and has an Australian Company Number.
These matters must be put in place prior to you entering into the contract.
Whatever your purchase, look back at our general blog on Conveyancing for properties in your SMSF, and heed the following golden rules
- Seek advice. If you are not happy with the first advice you get, check it with another practitioner.
- Always check the ATO’s regulations
- Look after your documents: they are a lifeline in case of questions or trouble.
For additional information, call John Morrissey on 02 9331 0266 or Susan Du Chesne at Equilibrium Wealth on 02 9357 2700.