Leasing your business premises from your SMSF

An SMSF generally can't buy assets from members or other related parties. However, there's a well-established exception for business real property. If your property qualifies, your SMSF can legally purchase the premises your business operates from and lease it back to your business, provided the arrangement complies with the superannuation rules and is conducted on arm's length terms.

The business real property exception

Business real property is commercial property used in a business, such as an office, shop, warehouse or medical suite. It's one of the few assets an SMSF can generally buy from a related party and lease back to that same business, provided the arrangement is on arm's length terms and complies with the superannuation laws.

How the lease-back actually works

The mechanics matter as much as the concept. A compliant lease-back generally requires:

• Market rent: Rent should reflect market rates and be supported by appropriate evidence, rather than being set to suit the business's cash flow.
• An arm's length arrangement: The lease should be on commercial terms that independent parties would agree to.
• Proper documentation: A formal written commercial lease should be in place, setting out the rights and obligations of both parties.
• Rent paid on time: Rent should be paid in accordance with the lease, just as it would be in any other commercial tenancy. Late or missed payments because the parties are related can create compliance issues.

Why business owners do it

• Rent helps grow your super: Instead of paying rent to an unrelated landlord, your business pays rent to your SMSF. Those rental payments become income of the SMSF and help build your retirement savings.
• Generally tax deductible for the business: Rent paid on arm's length terms is typically a deductible business expense, although your accountant should confirm how the rules apply to your circumstances.
• Separates the property from the operating business: Holding the property in your SMSF means it is owned by the fund rather than the trading business. This can provide asset protection benefits, although the level of protection depends on the circumstances and legal structure.

The rules and risks

This is a compliance-sensitive area, and it's worth understanding the key rules at play. Transactions between an SMSF and related parties must comply with the superannuation laws, including the rules on acquiring assets from related parties, leasing business real property and, where relevant, the in-house asset rules. Getting the rent, documentation or payment terms wrong can create compliance issues.

The sole purpose test also requires the fund's arrangements to be maintained solely for providing retirement benefits, rather than primarily benefiting members or their business in the short term.

We keep this general because the detail depends on your fund and your circumstances, so always involve your accountant or licensed financial adviser when setting up and managing a lease-back arrangement.

Frequently asked questions