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​How to Use Self Managed Superannuation Fund (SMSF) to Buy Property for your Business to Lease in Australia

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You have different options when it comes to securing a business property that you can set up for lease, but the most manageable among your options is the Self-Managed Superannuation Fund. This option can offer easy to access funds and low investment payoff, provided you stick to the rules of the agreement. Here are a few things that you need to understand in order to use your SMSF to secure investments for your business in Australia.

What is a Self Managed Superannuation Fund?

In essence, an SMSF is a trust fund structure where a certain party manages and controls retirement benefits and savings in behalf of its legal recipients. While this kind of structure is originally used to ensure retirement savings to its bonafide members, the same structure grants benefits to certain beneficiaries upon the death of the member. It also offers underlying property acquisition options for businessmen who want to secure assets for leasing.

Upon establishing a Self-Managed Superannuation Fund, the members will need to set up a live bank account that will be used to pay out benefits and rollovers to its members. This account is also useful in paying out pensions and dividends to retirees who are part of the group.

An SMSF agreement requires four main basic systems in place, in order to ensure benefit distribution among its members. First, the SMSF should secure a trust deed that will detail the official rules of the fund. An investment strategy should also be in place, in order to properly guide the trustees in making investment decisions for the whole team. In this case, your strategy should involve acquiring business property that will eventually be put up for lease.

In addition to these, your fund should also have a binding death nomination and system for annual tax return and audit, which will properly state the beneficiary in case of death and will lay out official financial statements, respectively.

What are the Rules for SMSF Property Acquisition?

For you to acquire a property using your Self Managed Superannuation Fund, you will need to work with specific rules and guidelines. Keep in mind that failure to abide by these rules may render your property acquisition request invalid or may present you with legal problems once the property has already been secured under your name.

First and foremost, since your SMSF’s main purpose is to provide retirement benefits to your members, the business property that you will acquire using it should serve this purpose, too. This means that whatever profit and proceeds that may result from leasing out the secured property should be remitted into the members’ accounts in the form of retirement savings and benefits. For this reason, you will need to name your members as shareholders of your business and you will need to provide a proof that they receive their dividends on a regular basis.

In addition to this, there is also a rule that the property that you will buy using your Self Managed Superannuation Fund should not be acquired from any relative of your SMSF’s members. You can easily abide to this rule, as you can simply seek the help of an investment or a real estate company in finding listings and assets that you can acquire.

Finally, the business property that will be put up for lease should not be occupied or rented by a party that is related to any of your members. All leasing agreements, which will eventually lead to profits, should be done between your company and a totally unrelated party. This is to ensure that no single member of the SMSF will benefit more than the others.

As long as you work within the confines of these rules, you should have no problem in acquiring a business property for lease using your Self Managed Superannuation Fund. When done right, your rent, which will be at par with the market rate, will be paid directly to your SMSF.

What Kinds of Fees would you Need to Pay?

Just like other kinds of property acquisition processes, you will need to fend for a roster of fees if you were to acquire business property for lease using your Self Managed Superannuation Fund. These fees include, but are not limited to: banking fees from your financial organization, advice fees and advice fees for the legal counsel that you may use, and other property management fees that you may have to take over upon acquiring the property.

Make sure that you secure independent advice when it comes to assessing if a property falls within the limits of the rules detailed above. In addition to this, see to it that any adviser who you will work with has an Australian Financial Services License.

What are the Risks that Come with SMSF Property Acquisition?

While it can be pretty simple for you to secure funding for a business property by tapping into you Self Managed Superannuation Fund, you should be advised that there are a handful of risks that you will need to deal with if you were to buy an asset using your SMSF. Go through these items and make sure that you create a system that will allow you to manage your risks.

First and foremost, you may find yourself facing higher acquisition costs. Due to the fact that the SMSF assets and responsibilities are divided among members, property loans provided under this kind of scheme tend to be more expensive than loans offered by other financial options.

In addition to this, you will need to take this fact into consideration: repayments should be made using your SMSF account. With this said, you and your members should ensure that your account will consistently have available liquid assets.

Finally, you will not be allowed to make any kind of alteration on the property that you will secure. If you plan to buy a property with the goal of renovating it afterwards, then you should look for another option because your Self Managed Superannuation Fund will not allow such modifications. 

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