How to Stop Renting Your Business Premises
- January 15, 2019
- Posted by: Quarles Business & Financial Strategists
- Category: Self Managed Super Fund
Did you know that you can stop renting your business premises and buy a suitable Perth location instead via a self-managed super fund (SMSF)?
As the old saying goes, “rent money is dead money”.
You can use an SMSF to purchase commercial premises and lease them back to your business.
Advantages of Buying Your Business Premises With An SMSF
• Pay your rent into your SMSF instead of to a third-party landlord. SMSF earnings are taxed at the concessional rate of just 15%.
• Deduct property expenses (including interest and depreciation) from your rental income, further reducing the tax paid via your SMSF.
• Make structural changes to the property to suit your business needs as they change over time.
• Achieve capital growth as the property appreciates in value. Demand for premises in the Perth manufacturing sector has been showing signs of picking up recently, so now could be a could good time to think about buying?
• Reduce capital gains tax on a future sale of the premises (provided it is held for more than 12 months) to just 10%.
• Eliminate capital gains tax on a future sale of the premises if it is sold during the SMSF’s pension phase.
An SMSF can borrow to purchase property under what is known as a limited recourse borrowing arrangement. This means that any other assets in your SMSF are protected if there is a default on repayments.
If you already have an SMSF, you have the vehicle to stop renting your manufacturing premises. If not, you can obtain independent professional advice to set up an SMSF that will be appropriate for your individual circumstances.
But buying your manufacturing premises through your SMSF is just one option you can use to stop paying rent. You can also arrange for a standard business loan to buy premises and you’ll gain many of the benefits that purchasing via an SMSF provides.
The business loan can be secured against the commercial premises.
Buying business premises can give you greater control over your financial future and allow you to plan with confidence.
Remember, there are still risks involved with this process.
Risks of Buying Your Business Premises With An SMSF
Despite all the positives of investing in commercial properties through your SMSF, there are some drawbacks that you should consider:
• You won’t be able to offset tax losses from the property against your personal income tax.
• If you the lease the property to your own business, it must be at the market rates.
• You can’t skip rental payments, even though you will be paying yourself. The payments must be on time and in full.
• You will regularly need to have the properly valued independently
• The SMSF investment will need to be for the sole purpose of providing retirement benefits to its members.
• The liquidity of the investment may not be in line with your overall investment strategy.
Despite this, buying a commercial property through your SMSF can be a great way to stop renting while also growing your wealth.
Another important step in this process is choosing the right location for your business premises.
If your current location isn’t working for you, do your research to try and find somewhere better.
You’ll need to consider what you’re currently paying in rent and what you can afford in loan repayments. You may find that there’s not much difference between the two amounts.
Book a free consultation to see if these options work for you, and make sure you get the best options for your personal finances and business growth.