How to Transfer Commercial Property to SMSF
Self-Managed Super Fund (SMSF) members can make direct asset contributions to their super fund instead of just cash. Many commercial property owners use this strategy to build long-term wealth, improve retirement outcomes, protect assets, and take advantage of potential tax concessions.
The process of moving real business property from a fund member’s name to the SMSF is a complex process. If you’re considering this strategy for your SMSF, you need to know the rules and requirements. Here’s a quick guide on transferring a commercial property to your SMSF:
What is in specie transfer?
SMSFs are allowed to acquire assets from a member or related parties in limited circumstances under the Superannuation Industry (Supervision) Act (SIS Act) using an in specie transfer.
An in specie transfer refers to contributions of assets made to an SMSF. Not all assets are allowed to be transferred to an SMSF according to Super Laws. Transferable assets to an SMSF include:
- Real business properties or commercial properties
- Securities listed by the Australian Securities Exchange (ASX)
- Widely held managed funds
- Bonds, debentures, and other cash-based investments
If an asset is not listed in the Super Laws, it’s generally prohibited for an SMSF to acquire assets from members or related parties unless an exception applies.. It’s important to understand the limitations of an in specie transfer so you don’t go against Super Laws.
What types of properties can be transferred to an SMSF?
In specie transfers of business real properties are allowed under Super Laws. Business real properties generally refers to properties that are used wholly and exclusively for business purposes. The entirety of the property will operate as a business premise full time.
Members, related parties, or a trust can transfer the business real property to the SMSF given that the transfer is at market value. Business real properties include business premises such as:
- Commercial offices (e.g., office suites, corporate spaces)
- Industrial properties (e.g., warehouses, manufacturing factories)
- Retail spaces (e.g., storefronts, shopping centres)
- Medical facilities (e.g., doctors' offices, clinics, dentists)
- Rural land (e.g., farmland, primary production land)
Before transferring property into an SMSF, make sure that this move is in line with the investment strategy requirements. SMSFs are audited yearly by an SMSF auditor who ensures that it is compliant with SMSF investment requirements.
How to transfer commercial property to an SMSF
A fund member can transfer their commercial property to an SMSF as a contribution or as an asset sold to the SMSF. You may incur fees associated with the transfer, including stamp duty, strata levies, and legal fees.
Transferring commercial property as a contribution
When you mark an in specie transfer as a contribution, the SMSF will be named the purchaser of this asset.
For the transfer to be treated as a contribution, a member must be elected to determine the allocation of the contribution and the type of contribution to be allocated, either concessional or non-concessional. After the election, the value of the asset will be allocated to the elected member. All this is needed for the annual SMSF compliance documents.
There are eligibility criteria and contribution limits you need to keep in mind when electing the member to allocate the asset contribution to.
Transferring commercial property as an asset sale
When transferring a commercial property as an asset sale, you’re essentially selling your property to the SMSF itself. You’ll need to execute a Contract of Sale. Check in with a solicitor to prepare the needed documents, including transfer documents.
The purchaser of your commercial property will be listed as your SMSF. The purchaser will be the SMSF and will pay the market value for the commercial property. Instead of electing a member to allocate the commercial property, the allocation will be proportional to each fund member based on the existing SMSF ownership structure.
If your SMSF does not have enough funds to buy the commercial property, you may want to consider an SMSF commercial loan. Speak with the friendly lending specialists today at loans.com.au to learn more about your SMSF commercial loan options and what buying a business real property through an SMSF entails. Get in touch by calling 13 10 90 or schedule a call!
What happens after the transfer?
If you intend to use the commercial property for your own business, you’ll need to sign a formal commercial lease agreement, and rent must be priced at a market rate. Strict payment enforcement must be observed, as well. If there are late or deferred payments or non-payment of rent, this may lead to non-compliance and result in a breach of the Super Laws.
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek independent professional advice tailored to your personal circumstances before making any financial decisions.
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