Small Business Owners and Commercial Property
There can be significant advantages available to small businessowners who hold their business premises in their SMSF, with the keybenefit being the low tax environment for holding their property assets.
A SMSF has the ability to purchase business premises from amember or related party and the SMSF can then lease the businesspremises to the member’s business at arm’s length or commercial terms. The SMSF pays a maximum 15% tax on the rental income,whilst the member’s business would obtain a tax deduction on therental expense at 30% for a company or up to 46.5% for other businessstructures – thereby obtaining a benefit through the different tax rates.
Furthermore, if the SMSF is in pension mode, it could be in aposition where the fund does not pay any tax on the rental incomereceived, whilst the business still benefits from the tax deduction claimed for the rental expense.
Norm Honey, a long time client of RSM Bird Cameron, was madeaware of these options when he discussed his plan to purchase acommercial property at the Kingston Foreshore with his Accountant,Ken Johnston and his Financial Planner, Nathan Nash. Norm says ‘theone stop shop or team approach at RSM was invaluable when I wasexploring ways to structure my business and the property purchase’.
‘I’m now looking forward to the completion of the commercialproperty at the Kingston Foreshore’ says Norm, ‘and I have usedmy superannuation savings as a source of capital and will hold the commercial property in a low tax environment’.
Purchasing Commercial Property
As well as SMSFs being very tax effective structures for holding commercial property, the borrowing provisions available to Trustees now make buying commercial properties within a SMSF a lot more feasible.
Additionally, the tax benefits are amplified when a SMSF is inpension phase as mentioned, with potential tax free income and nilcapital gains tax.
Also, paying less tax on rental income means more cashflow is available to either repay any loan faster or to reinvest within the fund.
Before deciding to purchase a business property within your SMS Fit is important to speak with your accountant and financial advisorabout the pros and cons, as well as the best way to structure such a purchase.
Considrations
A number of considerations need to be factored into the decisionto purchase or to transfer ownership of a commercial property, suchas:
1. Stamp Duty This can be a considerable cost, although the longerterm benefits generally outweigh the initial costs. Also some Statesoffer stamp duty concessions.
2. Capital Gains Tax The transfer of the property into the SMSF is aCGT event due to the transfer in ownership. However, a number ofstrategies exist to minimise or eliminate the tax consequences suchas Small Business CGT Concessions.
3. Limitations Preservation rules may restrict access to assets withinsuperannuation and contribution limits may also restrict the valueof property that can be transferred.
One of the most valuable benefits to clients of RSM Bird Cameronis their ability to connect with a team of professionals. The teamapproach of their accounting and financial planning professionalscan provide significant advantages with regards to structuring assets,minimising tax, utilising superannuation and creating long term wealth.
‘Having financial planners and accountants under the same roofhas really allowed us to offer a comprehensive solution for our clients,’says Nathan.
‘We are able to identify where opportunities lie and offer innovative solutions, rather than just looking after a client from a one dimensional perspective.
‘RSM Bird Cameron provides taxation consulting services throughits accounting division, as well as personal financial planning throughits subsidiary, RSM Bird Cameron Financial Services Pty Limited(AFSL 238282).
‘Our personalised approach is not only about quality advice butmore importantly it’s about a trusting relationship and the reliabilityof the people helping you with your corporate or individual financial welfare’ says Lindsay Walker, also a Financial Planner at RSM Bird Cameron Financial Services.
For more information please contact Ken Johnston, Nathan Nash or
Lindsay Walker on 02 6217 0300 to arrange a free consultation.