The purchase of real property by self managed superannuation funds (SMSFs) is an exemption allowed under the acquisition of assets from related party rules. The property can provide regular income for an SMSF while the business paying rent receives a tax deduction of the expense.

Using an SMSF to purchase real property may provide significant taxation and finance benefits.

How it works

Geoff age 55 and Helen, 51 are partners in a successful restaurant business. They lease the business premises; however there is an opportunity to purchase this from the current owner. Geoff and Helen have $300,000 and $350,000 respectively in the Geoff and Helen Super Fund, an SMSF.

Rather than take on additional debt, Geoff and Helen use their SMSF to acquire the property. The SMSF then leases the property to the business on normal commercial terms. The investment strategy for the SMSF reflects that their decision to invest in business real property is for retirement purposes and takes into account the estimated income and capital growth from the property.

The business continues to claim the rent as a business expense and the SMSF gains an income stream. The lease payments will be deductible to the partnership at up to 46.5 per cent, but will be taxed within the SMSF at only 15 per cent. Geoff and Helen have greater certainty as owners of their business premises (via the SMSF) and do not need to be concerned about lease renewals.

There are also tax benefits to this strategy. For instance, if the SMSF holds the property for at least 12 months, capital gains on the property will be taxed at a low rate of 10 per cent. If Geoff and Helen commence a pension before selling the property, the sale will be capital gains tax-free.

For business owners, the potential to use superannuation as an alternative source of financing for business real property is a real advantage of an SMSF.


Disclaimer: The information contained in this document is given in good faith and has been prepared from information believed to be accurate and reliable. This information is of general nature only and based on Multiport’s interpretation of the present laws but no guarantee is provided. This document is not designed to be a substitute for financial or investment advice and should not be relied upon as such. Reproduction of material in this document is only permitted with approval of the author.