Investing In Commercial Property

More sophisticated investors that understand the risks and rewards may prefer to invest in commercial properties.

Please read on to find out how you can buy commercial property with your SMSF.

What property can my SMSF invest in?

Standard offices, shops or warehouse investments are most common as they are easy to finance so offer significant gearing benefits.

Specialised properties such as boarding houses or service stations are more difficult to finance and you may not be able to borrow as much.

Can I transfer my own commercial investment property to my SMSF?

Purchasing commercial business property from a fund member is not classified as a related party transaction, so it is permissible.

However, the transfer must be for market value and the fund’s rental income must also be at market price.

The fund will be required to pay the purchase price in cash, to the vendor.

Can my company rent out my SMSFs commercial property?

Yes, renting business real property to the employer sponsor of the fund is one of the only related party exemptions that is allowed.

The main purpose of this exemption is to allow small business owners to include their business property in their retirement structure.

Do I have to pay GST?

Some trustees may not be completely aware that the fund may have to pay GST if the rental income is above the threshold.

If you are registered for GST you may also be required to pay GST on the sale proceeds when the property is sold.

We suggest you consult your accountant or lawyer prior to purchasing a commercial property. They will be able to determine whether you are required to register for and pay GST.

What if GST is applicable?

If you are required to register for GST you may find it hard to claim back the input tax credit on the purchase price.

The ATO have developed elaborate systems to audit Business Activity Statements (BAS) for fraud or errors. If your fund’s BAS shows a huge refund input tax credit claim and next to no GST payable, this is likely to raise a red flag!

You may receive a GST audit questionnaire and could experience a delay in receiving the refund.

To make sure that you are on top of your GST obligations, please enquire online today and our experts will help you manage your fund.

Using your SMSF to buy commercial property

The same borrowing rules that apply to the purchase of commercial property, also apply to other assets.

The loan must be limited recourse (i.e. can only be called in against the value of the property asset) and the purchase must form part of your investment strategy.

Developing commercial property

Unfortunately, most banks do not lend to funds that want to develop a commercial property.

This is because your fund can only borrow to purchase a single acquirable asset and constructing a building would not be considered as purchasing a single asset.

Depending on the lending policy of the bank, loans may be available to renovate or repair the property, but this is not advisable. Please read on to find out more.

What other rules apply?

You cannot engage in property development with your SMSF, as this is likely to be considered a business and the super fund cannot be in business.

The distinction between ‘renovating a property’ and ‘property development’ in undefined, but the objective purpose will be evident when examining the acts of the trustee and the surrounding circumstances.

If the fund’s activity is classified as ‘property development’, your fund may be in breach of the rules and penalties may apply.

What if I buy a property that is both commercial and residential?

Many properties have a retail store on ground level and a residential home on the second level.

This is generally not a problem. Issues will only arise if the fund members occupy the residential property.

From an administrative point of view, this type of property means you need to account for G.S.T differently for each tenant and claim that portion of input tax credits on your purchases.

Invest using your SMSF today!

Thinking of investing in commercial property using your SMSF? With our help, you can make an investment decision that will maximise your returns. Enquire online today!

Note: this website is for informational purposes only and should not be substituted for professional financial or taxation advice.