SMSF Commercial Property Loans: Buy Your Business Premises Through Super
For many small business owners, the most useful thing an SMSF can do is buy the premises the business operates from. Instead of paying rent to a landlord, your business pays rent to your own super fund. Here’s how it works.
Why commercial property is different
Super rules are stricter for residential property. Commercial property that counts as business real property gets more flexibility:
- Your SMSF can buy it from you or a related party, as long as it’s at market value
- Your SMSF can lease it to your own business, at market rent and on proper commercial terms
Business real property generally means land and buildings used wholly and exclusively in a business, such as an office, shop, warehouse, medical rooms or a factory.
How the loan works
The purchase uses a limited recourse borrowing arrangement (LRBA), the same structure as any SMSF property loan. The property is held in a holding trust while the loan is in place, and the lender’s claim is limited to that property. Read the LRBA explained.
Lenders commonly want a deposit of around 30% or more for commercial SMSF loans, plus costs. They will look at the lease, the rent and the strength of your fund.
Leasing to your own business
This is where it pays to be careful:
- Have a written lease at market rent, ideally backed by an independent rent appraisal
- Your business must actually pay the rent, on time, every time
- Review the rent when the lease says to
- Keep good records for your SMSF auditor
Missed or below-market rent can breach super rules and cause problems with the ATO.
Example: a family business buys its warehouse
Mark and Lisa run an electrical supply business and rent a warehouse for $60,000 a year. When the owner offers to sell, their SMSF buys it using an LRBA. Their business now pays the $60,000 market rent to their SMSF. That rent, plus their super contributions, repays the loan. Over time, the property becomes part of their retirement savings.
This is an illustrative example, not a real client.
Things to consider
- If your business struggles, the rent your fund relies on may be at risk too
- A single property can make up a large share of the fund
- Borrowed money can’t be used to improve or fit out the property
- Selling the property later must follow super rules
Get advice from your accountant and a licensed financial adviser before you commit.
How we help
We find SMSF lenders that suit commercial property, structure the loan, and work with your accountant and solicitor so the contract, trusts and lease are set up correctly. See also SMSF loans and commercial finance.
Albert Waldron is a Credit Representative (407514) of Australian Finance Group Ltd, Australian Credit Licence 389087. This is general information only and does not take into account your personal circumstances. Please seek advice before acting. SMSF loans are complex. We arrange the loan only. Get advice from a licensed financial adviser and your accountant about whether an SMSF or this property suits you.