Business real property
Self Managed Super Funds are restricted when investing with related parties – like members
or member’s relatives. These restrictions don’t apply to a market
value purchase of business real property. What is business real property?
Well, it’s generally an interest in land or buildings used exclusively in one or more
businesses. The interest may be a lease or the property may be owned by the fund.
So, does it have to be used entirely for a business?
Usually – but some minor non-business use may be acceptable… just like Kev’s large
dairy farm, which has a small house on it. The main use of the land is for the farming
business and Kev’s use of the house is incidental and relevant to the business.
Kev’s SMSF can buy the farm from Kev and lease it back to him because it is business
real property. Kelly is another story – she owns a four
bedroom house that she lives in, but she also uses one of the rooms as a hair salon.
Kelly sells the house to her fund and leases it back for her hairdressing business.
The problem is, Kelly’s private use of the house is more significant than the business
use, which means the property is not business real property.
By buying Kelly’s house, her fund has breached the super laws – it could be made non-complying
and lose almost half its assets in tax. Kelly could be disqualified from being a trustee
and she would be fined thousands of dollars, which she would have to pay out of her own
pocket. Every business is different and how property
is used will determine if it is actually business real property or not.
You should consider speaking to an SMSF professional before purchasing property from a related
party. For more SMSF information take a look at our
other videos – or visit the ATO website at www.ato.gov.au