One of the more compelling features of a self-managed super fund is the ability to purchase commercial property, including business premises that a fund member’s own business can lease. This arrangement, when structured correctly, allows business owners to pay rent to their own superannuation fund rather than to a third-party landlord, effectively redirecting occupancy costs toward their retirement savings.
Buying commercial property through an SMSF is a complex process, but with the right professional team in place, it is achievable and can be highly advantageous. At ALIC, our lending specialists work alongside SMSF trustees at each stage of the process.
Step 1: Confirm Your SMSF Is Set Up Correctly
Before you can purchase property through your SMSF, the fund must be established and compliant. This means having a current trust deed that permits property investment and borrowing, a documented investment strategy that supports the proposed purchase, and at least one corporate trustee or individual trustees in place.
Your accountant or SMSF administrator will need to confirm that the fund’s investment strategy is appropriate and that the proposed purchase aligns with the fund’s stated objectives.
Step 2: Establish a Bare Trust (If Borrowing)
If your SMSF intends to borrow to fund part of the purchase, an SMSF limited recourse borrowing arrangement must be established. This requires the creation of a bare trust, also called a holding trust, which holds legal title to the property on behalf of the SMSF until the loan is fully repaid. The bare trust is a separate legal entity and must be set up by a solicitor experienced in SMSF law.
Step 3: Secure SMSF Finance
Not all lenders offer SMSF loans for commercial property, and those that do apply specific criteria. Typical requirements include a minimum SMSF balance, strong serviceability evidenced by fund contributions and rental income, and a loan-to-value ratio that is often capped at 65 to 70 per cent for commercial assets.
ALIC works with a range of lenders across our 40+ panel that offer SMSF commercial lending. We help you identify suitable lenders, prepare a compelling application, and structure your finance to meet lender requirements while supporting the fund’s broader strategy.
Step 4: Conduct Thorough Due Diligence
Commercial property due diligence involves reviewing the lease terms, the tenant’s financial position, the property’s condition and any capital expenditure required, zoning and council compliance, and the property’s income history. If the property will be leased to a related party, the lease must be at market rent and on arm’s length commercial terms, as required by superannuation legislation.
Step 5: Complete the Purchase
Settlement for a commercial SMSF purchase follows a similar process to other property transactions, but the documentation is more involved. The bare trust and SMSF trust must both be parties to the transaction, and your solicitor will need to ensure the titles and legal arrangements are correct from the outset.
Any errors in the legal setup at this stage can have significant compliance and tax consequences, which is why working with professionals experienced in SMSF property transactions is essential.
Ongoing Compliance After Purchase
Once the property is in the fund, the SMSF’s obligations do not end. The property must be maintained for the sole purpose of providing retirement benefits, the lease must remain at market rent if a related party is involved, and the fund’s annual accounts and audit must reflect the asset correctly.
The ATO monitors SMSF property arrangements closely. Maintaining thorough records and working with an experienced SMSF accountant protects the fund from compliance risk.
How ALIC Can Help
Financing the purchase of commercial property through your SMSF is a specialist area, and ALIC has the expertise to guide you through the lending side of the process. We work collaboratively with your accountant, solicitor, and financial planner to ensure the finance structure supports every other aspect of the transaction.
Contact our team to discuss buying commercial property through your SMSF and how we can support your fund’s investment strategy.
