Be vigilant when transferring business premises to your Self Managed Superannuation Fund (SMSF)

Transferring your business premises to your SMSF certainly has many advantages, but in this article I would like to address some of the problems that business owners have overlooked. 1. Arms length transaction. Section 109 of the Superannuation Industry (Supervision) Act (SIS Act) requires that all investment transactions of a SMSF be made and maintained on an arms length basis. This means that the property must be transferred at its current market value. Not its original cost. Not for the value of the current outstanding loan on the property. 2. Capital Gains Tax. By transferring the property at its current fair market value, then you as vendor may be subject to Capital Gains Tax (CGT). Where the property has been owned by the vendor for some time the Capital Gains Tax implications may be substantial. You need to address this with your accountant prior to transfer to minimise any CGT implication. If your business has a turnover of less than $2million dollars you may qualify for some small business Capital Gain Tax relief, exemptions or concessions. 3. Stamp Duty. Stamp duty is a state based tax. That is the stamp duty rules for each state vary. It is possible in some states to qualify for an exemption or concession. It is critical that you explore these options before undertaking this transaction. If you don’t qualify for the concession the Stamp Duty liability can be substantial. For example in NSW the Stamp Duty on a $1 million property is $40,490. 4. Good and Services Tax (GST). Where the transferor of non-residential property is registered for GST, then GST must be considered. Where the recipient is not registered for GST and the transfer is treated as a taxable supply, then one eleventh of the market value of the property will be payable by the transferor as GST, while the unregistered recipient will not be able to claim it back. In such situations, the GST will be a sunk cost of the transfer. It should be considered whether the transferor can deregister or whether the recipient can register for GST. In the latter case, potentially no GST will be triggered on the basis that the transfer is not a taxable supply, or the going concern exemption applies. Should you be contemplating the transfer of your business premises to your superannuation fund please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment. The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.