Why you need to think about buying your next office via your super fund
if you've ever looked into setting up an smsf, you'll notice that a lot of experts will discount the benefits of one with high fees being the main deterrent.
however, one strategy that no expert will discount is purchasing your office via your super fund. this article will explore some of the advantages of implementing this strategy but also some of the concerns you need to be aware of.
First up comes the positives, and this strategy has two big ones…
1. Extra Contributions
The nuts and bolts behind this strategy is that an SMSF is created to purchase your office. From there an arm’s length market rental agreement is set up between your company and your SMSF so that your company pays rent into your SMSF.
Rent paid to the SMSF is not counted as a personal contribution so there is simply no better way of contributing extra money into.
2. Low tax environment
During accumulation phase, if you decide to sell your office, capital gains tax is just 10 per cent as long as you’ve held the property for more than 12 months. However, in pension phase, no tax is paid on assets that fund the pension, unless they exceed $1.6 million, which is a new budget measure introduced by the government.
No investment strategy is perfect so if you are considering purchasing an office via an SMSF two issues might be:
1. Lack of diversification
Depending on whether you’ve got enough money to buy the property outright or require finance, you might fund that the majority of your funds will be used to acquire your office. Doing this puts all your eggs in one basket so if the property does not grow over the long term this would obviously be a major concern to your retirement.
2. Stricter rules for improvements
Under SIS act regulations, borrowed funds can be used to maintain or repair the property but not to make improvements. As such, if you’re looking at an office that you’re considering doing major work to, this may be an issue if you’re looking to purchase it under your SMSF.
In summary, buying a commercial property in your super fund’s name rather than your personal or business name has a lot of benefits. However, before committing to this strategy it’s crucial that you obtain independent financial and tax advice before proceeding down this route.