If you are considering investing in business real property in your Self Managed Super Fund, then please watch this video.The Australian Tax Office shares a series of great videos that help you better understand how Self Managed Super Funds work. Below we share with you their video titled “SMSF business real property” and a transcript below.
Transcript of ATO video
Source: AUSTRALIAN TAXATION OFFICE | ATO.GOV.AU
‘SMSF – BUSINESS REAL PROPERTY’ VIDEO TRANSCRIPT
Self Managed Super Funds are restricted when investing with related parties – like members or member’s relatives.
These restrictions don’t apply to a market value purchase of business real property.
What is business real property?
Well, it’s generally an interest in land or buildings used exclusively in one or more businesses.
The interest may be a lease or the property may be owned by the fund.
So, does it have to be used entirely for a business?
Usually – but some minor non-business use may be acceptable… just like Kev’s large dairy farm, which has a small house on it.
The main use of the land is for the farming business and Kev’s use of the house is incidental and relevant to the business.
Kev’s SMSF can buy the farm from Kev and lease it back to him because it is business real property.
Kelly is another story – she owns a four bedroom house that she lives in, but she also uses one of the rooms as a hair salon.
Kelly sells the house to her fund and leases it back for her hairdressing business.
The problem is, Kelly’s private use of the house is more significant than the business use, which means the property is not business real property.
By buying Kelly’s house, her fund has breached the super laws – it could be made non-complying and lose almost half its assets in tax. Kelly could be disqualified from being a trustee and she would be fined thousands of dollars, which she would have to pay out of her own pocket.
Every business is different and how property is used will determine if it is actually business real property or not.
You should consider speaking to an SMSF professional before purchasing property from a related party.
For more SMSF information take a look at our other videos – or visit the ATO website at www.ato.gov.au