Business owners who are currently renting their business premises are potentially missing out on millions by not purchasing the premises and placing it in their SMSF to claim the associated tax and financial benefits, according to Ausin Group.
Statistics from the Australian Tax Office show that approximately $54 billion is invested in non-residential property. About $17 billion is in residential.
Mark Morcos, Director of Ausin Group’s Wealth Management division said, “Approximately 60 per cent of business owners who seek our advice are unaware of the significant tax and financial advantages associated with operating their business from a premises owned by their SMSF.
“We believe that business owners are potentially being disadvantaged by not investigating the option of using a SMSF vehicle to purchase a business premises. By purchasing a building that business owners are currently renting, they have the potential to place themselves in a stronger financial position for the future.”
He added, “For many years we have been advising clients about placing business premises into a SMSF. This strategy makes smart business sense as their dollars are put to work in an asset that can directly benefit them. There is also greater business continuity with the asset and SMSF working together.”
Several tax benefits may be gained by placing business premises into a SMSF. For example, property expenses, including interest expense, and depreciation allowance are tax deductible, which means that tax on income or SMSF contributions may be reduced. Additionally, property held longer than 12 months may only incur capital gains of 10 per cent or become tax-exempt if the SMSF is in pension phase.
Commercial property is generally seen as a high yield investment and hence rent can be used as a significant cash flow injection directly into the fund with fees generally being tax deductible.
Under the SMSF recourse borrowing arrangements, up to 70 per cent can be borrowed for business premises.
Mark concluded, “Business assets and SMSF’s can work very well together to significantly benefit the owner if a streamlined strategy is adopted.”
Below are Mark’s four tips when looking to purchase commercial premises for business use under an ownership structure through a SMSF:
1) Know the numbers relating to the asset. Does the asset survive as a solid investment opportunity that stands on its own merit?
2) Research the average yield, growth rates and vacancy rates in the area. Determine what amenities are in the area to support asset growth ie schools, shopping centres, industrial/retail parks etc. Requirements will change depending on the industry represented.
3) Identify a clear financial strategy both personally and for the business, which includes goals and objectives for the short, medium and long term.
4) Determine how much can be borrowed. How much would be paid by renting commercial premises versus interest repayments if the asset was purchased? How much can the business afford to spend on an asset?
