Operating Business from a property owned by your SMSF?
This is a very popular wealth creation strategy used by some business owners to invest for their retirement by renting their business premises owned by their Self-managed super fund (SMSF).
What is SMSF?
An SMSF is a privately run super-fund that can have up to 6 members. The purpose of an SMSF is same as other super funds i.e., to create wealth for its members for their retirement.
This type of super fund differs from retail or industry super funds as the members are also trustees of an SMSF.
A business owner can be an SMSF member while running their own business separately to the fund. However, this is on the condition that any dealings between the SMSF and the business are done on an arm’s length basis. A business owner can use a commercial property that is owned by their SMSF as their business’s premises.
This strategy is also used as an asset protection strategy for the business owners. It protects business owners from any lawsuit by their customers or public whilst the premises are owned by their superfund. Since the business premises are owned by SMSF, assets owned by SMSF are not available for compensation in case of a successful lawsuit against the business owner.
How does depreciation work in this scenario?
Depreciation is the natural process of wear and tear, it happens to most assets including property, vehicles, and furniture. An SMSF can claim this depreciation on any eligible property it owns under the fund, while business owners can take advantage of depreciation of the assets, they use for business purposes.
In this scenario, depreciation is still split into two parts as per the case study below:
John operates his hairdressing salon from a property owned by his SMSF. He rents the property at market rates from his SMSF. John will be able to claim depreciation for the fit-out he owns in the property against his business’s taxable income. This includes furnishings, equipment and point of sale systems.
The depreciation on the structure of the property and anything that is part of the fixed structure of the property must be claimed separately by the owner of the property i.e., SMSF in this case.
Depreciation can save thousands off a tax bill every year, so these claims are often, looked at in detail by the Australian Taxation Office (ATO). Businesses and SMSFs alike can ensure they maintain full compliance and avoid ATO scrutiny with a tax depreciation schedule.
This schedule is a document that lasts the lifetime of a property. It outlines all depreciation deductions that are available each financial year and is used by an accountant at tax time.
Expert Tax have tied up with a Quantity Surveyor for our client’s depreciation schedule.
Expert Tax can be contacted on 0449 952 855 or 1300 869 829 for assistance.
DISCLAIMER – Information in this article is of general nature and doesn’t constitute to advice regarding SMSF. Sole aim of this article is to provide information on tax consequences of renting a property owned by business owner’s SMSF. This article does not take target audience’s circumstances into consideration. Readers must take independent qualified advice before taking any action.