There are a number of different entities that can purchase commercial property including individuals, individuals in partnership, companies, trustees of discretionary trusts, trustees of superannuation funds or a combination of entities.
If you own, or are planning to buy practice premises, and have done so in your own name (or names, together with your spouse), or in your family trust, you may consider transferring those premises to your self-managed super fund (SMSF), to take advantage of the concessional tax treatment of income and capital gains earned by SMSFs.
SMSF lending is a great market opportunity and the sole fact that Credabl offer it, is unique. So, how and why would practice property owners consider it? Credabl sat down with Alex Sceales, of Sceales Lawyers, to gain some extra intel on the world of SMSF’s.
1. Initial considerations
First things first – speak to your accountant and tax adviser about any SMSF acquisition of your business premises. He or she needs to be involved in any acquisition from the outset.
Next, consider whether the premises are suitable for ownership by a SMSF? It needs to be a single acquirable asset, if the SMSF does not have enough funds to buy the premises without borrowing. It must qualify as ‘business real property’, being property used wholly and exclusively in one or more businesses. It must represent a sound investment for a SMSF, bearing in mind that the primary purpose of a SMSF is to provide retirement benefits to its members.
You will need to get a valuation of the premises from a licensed property valuer. This is essential if the SMSF will not borrow to acquire the premises. If the SMSF will borrow, then a lender such as Credabl will often arrange a valuation.
If the premises are held by your family trust and are leased to you or anyone else, then ensure that lease arrangement is documented. The lease must be on commercial ‘arms length’ terms once the premises are held by the SMSF.
2. How will the SMSF fund its acquisition?
A SMSF can acquire premises from its members in several ways, including outright cash purchase, full or part debt funding, concessional and non-concessional member contribution, or a mix of any of those acquisition methods. The precise mix depends largely upon the SMSF’s existing member account balances.
If debt funding is required, then a bare or custodial trust arrangement must be established for the sole use of holding the asset. The trustee of the bare trust (which must be a entity to the trustee of the SMSF) acquires the premises and holds it on trust for the SMSF until the loan is repaid in full. That relationship is governed by a bare trust deed, prepared by solicitors.
3. Tax considerations
Nominal transfer duty of $20.00 is charged upon the acquisition of property by a SMSF from its members (amount dependent on state of registration). Care must be taken in drafting the transaction documents (which depend on the mix of cash/debt funding/member contributions) to address the requirements of the Duties Act if this concession is to apply.
If the premises are subject to a lease to a third party and if GST is paid on the rent, then GST may be avoided by transferring the premises to the SMSF ‘as a going concern’. Again, care must be taken to ensure the transaction documents address this matter.
The disposal of the premises will result in a capital gains tax event for the seller. Any net capital gain may be reduced significantly if the CGT small business concessions are available. That depends upon a few factors, including the market value of your assets, and annual turnover. The outcome of that inquiry will often be decisive of the initial question as to whether it is cost-effective for you to transfer your premises to your SMSF.
4. The sale process
If all the stars align and you decide to go ahead with the transfer, then it is a matter of engaging a solicitor to prepare the transaction documents. He or she must be conversant with the requirements of all tax, duty and superannuation laws, and commercial property conveyancing procedures.
Once those have been finalised and signed, the settlement process is largely the same as for any commercial property transaction. It is not usually necessary to appoint a settlement agent – the solicitor who prepared the transaction documents should be able to handle settlement.
The whole process usually takes at least 2 months from start to finish, depending on the need for finance, whether the premises are held directly by you or via your family trust, and whether the premises are subject to any caveat registered by a third party medical group (such as is often the case for premises located within privately operated hospitals, or the like).
5. Why a SMSF?
There’s an array of factors that encourage medical professionals to purchase their premises through their SMSF, some of which include possible tax advantages, protection of your assets and direct control of your super investments. It’s not uncommon for medical professionals to stay in the same rooms for an extended period, so selling your practice premises into your SMSF can potentially from then on, leave you with a tax-effective investment.
Read more here about what you need to know with SMSF lending and why it might be the best choice for you.
Credablcan fund medical practice premises through a Self-Managed Superfund – up to 90% Lend with no LMI.
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This article is a guide only and does not constitute any recommendation on behalf of Credabl Pty Ltd (ACN 615 968 100) or any of its related bodies corporate (Credabl). The information in this article is general in nature and we have not taken into account your personal objectives or financial circumstances or needs when preparing it. Before acting on this information you should consider if it is suitable for your personal circumstances. Credabl is not offering financial, tax or legal advice. You should obtain independent financial, tax and legal advice as appropriate.