Many business owners choose to invest in their premises via an SMSF. And it can make sense, especially with the latest Tax Office data showing[i] SMSF assets are highly concentrated in two asset classes, indicating a lack of investment diversification in these  retirement savings. 

Currently, there are 625,609 self-managed super funds in Australia, serving 1,152,792 members. The estimated total assets of SMSFs are $990.4 billion, with around $102 billion in commercial property. Yet the top asset types held by SMSFs (by value) are listed shares at $276,820 billion (28% of total estimated SMSF assets) and cash and term deposits at $162,411 (16%).  This data suggests that there remains a significant opportunity for SMSFs to consider investing in commercial real estate to provide them with some investment “diversification”.

Usually, the rules are so strict that you can’t lease a residential property, car or artwork from your SMSF. Even if the rent paid was a fair market price. The one exception is ‘commercial real property’. Your SMSF can lease commercial property to you, your family and other related parties. While this doesn’t provide the business with cheap rent – as it still must be a fair market price – what it does do is allow the business to claim a tax deduction for the rent expense while the rental income the SMSF receives helps build the business owner’s and his fellow SMSF fund members retirement nest eggs. Business owners can essentially become their own landlords with this strategy.

Another benefit of buying commercial property in an SMSF is the potential for higher rental yields than, say, a cash asset. Commercial leases often provide more stable and higher income streams, which can be particularly attractive for SMSF members looking to boost their retirement savings. Moreover, commercial property tenants typically sign longer lease agreements, sometimes extending for several years. This can provide a more predictable income stream for your SMSF, helping to stabilise your fund’s cash flow and potentially reducing the impact of short-term market fluctuations. 

This is an issue your accountant or financial adviser can discuss with you, but holding commercial property within an SMSF can provide a layer of asset protection. According to SuperConcepts[ii], SMSFs could be regarded as a shell for asset protection, which keeps them safe from legal action in a tax-concessional environment.  The fund’s trust deed can give the trustee complete control when distributing assets during retirement or after the death of a member.  This advantage may not be available in other superannuation fund types or structures, such as family trusts or companies. 

Learn more – talk to the experts

Buying a commercial property within your SMSF is a significant step.     

It is important to understand the costs involved, the process, and the availability of suitable commercial properties in your area. Before making a move, it’s also worth seeking the advice of a financial adviser. 

Also, speak with your local Raine & Horne Commercial property experts about what office, industrial, or retail asset might be perfect for your self-managed super fund. 

 
[i] https://data.gov.au/data/dataset/self-managed-superannuation-funds/resource/adcb7b2c-70a7-4359-9425-fd96ffa0b6c4
[ii] https://superconcepts.com.au/SMSF-insights/blog/smsf-insider/2021/07/16/protecting-your-smsf-assets