Employers with a self-managed super fund (SMSF) looking to protect their business assets can consider transferring their business real property into their SMSF.
Transferring business property into your SMSF is useful to protect your assets in the event of your business failing or facing litigation. It is possible for SMSF members to transfer business real property (land and buildings used exclusively for the business) to their SMSF by using a combination of methods.
An in-species transfer in the context of a business property refers to the ownership transfer of a property from one entity to another without the need to convert it into cash. During an in-species transfer, the value of the property is considered a contribution to your SMSF and is restricted by CGT regulations and contribution caps.
Cashing in your SMSF
You can use the cash available in your SMSF to buy your business property at market value as a normal cash purchase. The property must first be valued by an independent and qualified party before this is allowable. SMSFs that do not have enough sufficient capital to do this may consider using their non-concessional contributions cap to cover the outstanding balance.
Limited recourse borrowing arrangement (LRBA)
In the event that you do not have enough cash in your SMSF to outright buy your business property, you can apply for a loan using an LRBA. An LRBA can be obtained through a third-party lender, including your own business. You can borrow funds for your SMSF under an LRBA from your own business. However, before applying for an LRBA, consider its legal complexities and whether your SMSF will be able to maintain loan repayment fees on top of existing fees you may have, such as member pensions and accounting and auditor fees.
CGT retirement concession
The CGT retirement concession allows business owners exemption from CGT on business assets up to $500, 000 over a lifetime. If you are over 55, there are no associated conditions, however, if you are under 55, then you must place the money into a superannuation fund to receive the exemption.
This means that if you are under 55 and wishing to transfer a business real property into your SMSF, you can potentially do so without incurring any CGT liability (up to $500, 000).