Using your SMSF to own your business premises
Purchasing your business premises through your SMSF is one of the most widely used — and most tax-effective — SMSF investment strategies available to Australian small business owners. Here is how it works and the rules you must follow.
The strategy
Why this works for business owners
- Tax-efficient accumulation: Rental income taxed at 15% (or 0% in pension phase) rather than at your marginal rate
- Business expense: The rent you pay is a legitimate deductible business expense
- Wealth protection: The property is in the super environment — generally protected from creditors in the event of business failure
- Retirement asset: The property can eventually be sold within the fund or drawn down as a retirement asset
The rules you must follow
Lease at market rent: The lease must be on commercial arm's-length terms. The ATO audits non-arm's-length income (NALI) aggressively. Paying below-market rent to the SMSF risks the NALI provisions, which tax the income at the highest marginal rate.
Business real property only: The related party acquisition rule exception applies specifically to "business real property" — property used wholly and exclusively in carrying on a business. Residential property cannot be purchased from or leased to members.
LRBA for purchase: If the SMSF needs to borrow to purchase the property, the LRBA rules apply. For commercial property, the proposed borrowing changes are expected to leave SMSFs free to borrow for commercial property.
Depreciation: Your SMSF can claim depreciation on the commercial property — including capital works (Division 43) and plant and equipment (Division 40). A quantity surveyor depreciation schedule is recommended.
Important professional guidance
This strategy involves complex superannuation, tax, and legal rules. You must work with an SMSF specialist, a licensed financial advisor, and potentially a commercial property solicitor before proceeding.