SMSF and BRP – a winning combination
OYA Financial Decisions
More business owners are considering moving their superannuation into a Self Managed Super Fund (SMSF). An SMSF can give you more control of your retirement funds and flexibility of your investments including the ability to buy your business premises.
When your SMSF owns real estate, you can lease it to a related party of the fund. This is called Business Real Property (BRP).
The Superannuation Industry (Supervision) Act allows SMSFs to acquire BRP which includes farms, factories and offices. This strategy can provide significant taxation and finance benefits for business owners whilst providing additional income for your SMSF. Furthermore, your SMSF can borrow money to fund the purchase and use gearing to enhance your fund’s growth potential.
For example, Dr Smith owns a house used exclusively by his medical practice. He is a member of his SMSF, so in his capacity as trustee of the fund, he wants to acquire the house for market value and then lease it back to the medical practice so he can continue to operate his practice from the house. Although the house was built as residential premises, the real property is used wholly and exclusively for Dr Smith's medical practice business.
Once acquired by his SMSF, it is now BRP of the fund. His business claims the rent as a business expense and his SMSF gains an income stream. The lease payments will be tax deductible to the partnership at up to 46.5%, and will be taxed as income within his SMSF at only 15 percent.
If your SMSF holds property for at least 12 months, capital gains on your property will be taxed at a lower rate of 10 percent. If you commence a pension before selling your property, the sale will be capital gains tax-free. And any income or capital gains derived on your assets once you're over 60 years and in pension phase, are also tax-free.
Owning BRP through your SMSF is a great way to get income flowing into your super fund so you can enjoy tax free rental income during your retirement and avoid paying tax for the rest of your life.
For more information or to book a free consultation please call (02) 4990 3333 or visit www.oya.com.au