SMSF Commercial Property & Discounted Transfer Duty
For SMSF members who are small business owners, transferring commercial property from a trust or company to an SMSF can yield significant benefits or lower tax and CGT discounts along with, with discounted stamp duty fees, subject to meeting the required criteria.
What is SMSF?
An SMSF, or Self-Managed Super Fund, is a personalized superannuation fund giving you direct control and choice over your retirement savings unlike a retail or industry fund, where your investment choices are limited and set by the funds trustee.
Benefits of SMSF
SMSFs offer unparalleled flexibility, by providing members greater investment choices, direct ownership and control and fee deductions for operating costs of the fund. it should be stated that SMSFs are not suited to everyone, with greater control and choice comes risk and responsibilities, unlike with a retail or industry super fund.
The Role of Transfer (Stamp) Duties
Transfer or stamp duties are essentially a tax that state and territory governments charge for, notably property transactions. They can be high, often making property transfers a costly affair and the reason most SMSF business owners avoid this strategy.
Transferring Property & Enjoying Reduced Stamp Duty
The real magic happens when a commercial property is transferred from a company or trust to an SMSF. Certain states in Australia, like Victoria and NSW, offer discounted stamp duty fees for such transfers. However, this comes with a catch – the property’s value must be within the contribution thresholds, which means the combined total value of the property and any other contributions made to the SMSF in a financial year shouldn’t surpass the relevant thresholds.
Steps to Ensure a Smooth Transfer
1. Ascertain your SMSF’s deed permits property acquisitions.
2. Secure a credible property valuation.
3. Draft a foolproof contract of sale.
4. Lodge paperwork with the respective state’s revenue office, ensuring you meet contribution thresholds.
Related Party Loan Structuring for SMSF
These are loans offered by someone related to the SMSF, like a group of family members. These loans need to be documents via a loan document and deeds as well as adherence to the ATO’s loan safe harbour provisions and annual interest rates.
ATO Safe Harbour Provisions for SMSF Related Party Loans:
Nature of the Loan: The loan must be documented in legal loan document.
Interest Rate: The ATO sets out yearly benchmark interest rates for related party loans. These rates can change annually and for the 2023-24 financial it will increase to 8.85%
Term of Loan: Maximum loan term is 15 years for real property.
Loan-to-Value Ratio (LVR): The maximum LVR is 70% for real property
Security: The loan must be secured. For real property, a registered first mortgage is required.
Loan Repayments: Each year, at a minimum, payments must consist of both principal and interest. The loan must be fully repaid by the end of the term.
No Early Repayment Penalties: The SMSF will not be penalized for making early repayments.
The Benefits of Related Party Loan Structuring
By leveraging related party loans, SMSFs can potentially benefit from better interest rates and adjustable repayment terms. Whilst SMFS related party loans are not feasible for everyone. Those that can group family members or other parties to obtain this type of lending, gain more flexibility with less concerns that come with commercial lenders.
Important Structuring Tips
1. Enter into a formal loan agreement.
2. Apply the ATO safe harbour provisions for related party loans and these need to be reflected in your loan agreement.
3. ATO related party interest rates, change annually, update your loans schedule.
NSW Discounted Stamp Duty Fee for SMSFs Transferring Commercial Property
• NSW has provisions for stamp duty concessions for SMSFs under certain conditions.
• For SMSFs transferring business real property from a trust or company, a concessionary stamp duty fee applies.
• The stamp duty concession mentioned is indeed $500.
• It’s important to meet specific criteria and conditions to qualify for this concession. Documents and the purpose of the property transfer are among factors considered.
• The state emphasizes ensuring compliance with all associated rules and regulations when availing this concession.
Navigating the SMSF waters, especially with commercial property transfers and related party loans, requires expert advice, both legal and financial and good timing. For small business owners these stamp duty exemptions, lower tax and potential CGT reductions in pension phase on disposal of a business real property are compelling reasons to consider this strategy. Along with paying off a business property using super contributions and rental income from the business to the SMSF, discounted stamp duty is another incentive in NSW and Victoria to determine and undertake this strategy to benefit all parties and to maximise the retirement benefits of SMSF members.
1. What does stamp duty mean in the context of SMSFs?
It’s a tax on property transactions, which can be reduced when transferring commercial property from a trust or company to an SMSF within certain thresholds.
2. How does one qualify for reduced stamp duty in NSW, Victoria?
Ensure the commercial property’s value, combined with other contributions to the SMSF, stays within the set contribution thresholds for the financial year. Seek advice
3. Are related party loans always a good fit for SMSFs?
They can be beneficial, but are only viable for some people and it is crucial to ensure all transactions remain compliant with relevant regulations.
4. How do contribution thresholds impact property transfers to SMSFs?
They set a cap on the combined value of the property and other contributions made to the SMSF in a year, impacting the viability of the strategy and the eligibility for reduced stamp duty.
5. Can I transfer any commercial property to my SMSF?
While technically possible, always ensure it aligns with your SMSF’s investment strategy and you remain compliant with all regulations, especially concerning contribution thresholds and your SMSF deed does not restrict these transactions.