Pros

1.    Family businesses make great tenants.  As the members of the SMSF are also involved in the Family Business.

2.    Exception for Business Real Property.  Business Real Property is one of the few exceptions where a SMSF can purchase property from related parties including members.

3.    Business Real Property is also one of the few exceptions where property can be leased to related parties without being considered an in house asset.

4.    All rent paid by the business will be treated as income in the SMSF at the 15% rate.  The tax rate of the business deduction could be as high as 47%.  This would give an effective tax advantage of 32%.  

5.    If the members of the SMSF are in pension phase then the tax advantage could be as high as 47%.

6.    If you sell the property your tax rate could be as low as 0% provided your SMSF is in pension phase.

7.    Transferring a business real property into your SMSF could be exempt from stamp duty depending on the beneficial ownership changes.

8.    You are now allowed to borrow to purchase a business property inside your SMSF.

Cons

9.    Having all your superannuation tied up in one asset, such as a business real property may lead to liquidity problems.  Especially if you sell your business, the tenant leaves and you are unable to find a new tenant.

10.    If a member leaves the SMSF and there are other members, transferring the leaving member’s balance may require selling the property to fund the transfer.  This may also result in a Capital Gains Tax (CGT) issue.

11.    If member dies and their balance needs to be paid out of the SMSF, again the property may have to be sold to make the cash payments /pay the death benefit.  Again there may be CGT issue.

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com

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