BUSINESS owners can save thousands on workplace leases and unlock a raft of other benefits, by using superannuation to effectively become their own landlord, industry insiders say.
Omniwealth financial planner Andrew Zbik claims there is $78 billion worth of commercial and industrial property owned by self-managed superannuation funds, compared to just $28 billion of residential property.
This is because SMSF trustees have realised that their business can pay a lease to a property owned by a SMSF fund they set up themselves, enabling them to use cash flow from their business to build personal wealth.
If this sounds like an option for your business, Mr Zbik says there are three things you need to get right.
1. Have a SMSF
‘To choose your own commercial or industrial property you will need to have established your own SMSF. In superannuation terms, we call such a property as ‘business real property’,’ Mr Zbik said. ‘A special exemption permits business real property to be leased to a business owned by members of the fund; considered a ‘related party’ to the SMSF.’
Mr Zbik said that borrowing money for the purchase of the property must be permissible by the fund’s trust deeds. media_camera Commercial buildings can help build wealth for business owners.
2. Have a cash deposit
‘Cash deposits required for commercial or industrial property purchases are substantially larger than for residential,’ he said. ‘In most cases, the SMSF will need a cash deposit of around 35 per cent to 40 per cent of the purchase price.’
3. Pay a ‘market’ lease
‘Superannuation rules clearly require that when business real property is leased to a related party, the lease paid by the business must be on commercial terms,’ Mr Zbik said. ‘Pay for a property appraisal from a professional valuer to avoid any confusion.’
Fail to do this properly may see funds deemed noncomplying by the ATO, which will take a penalty payment of 47 per cent of the fund’s assets.
‘Having your SMSF own commercial or industrial property leased to your business is a smart way to get the lease money to build wealth for you outside of the business,’ Mr Zbik said. ‘Given that many commercial or industrial properties have an income yield of 6 to 8 per cent, plus, the relatively large cash deposit between 35 per cent to 40 per cent, the lease payments often cover all of the loan repayments. Thus, the SMSF still has a positive cash flow position.’