How to Transition a Commercial Property into an SMSF

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Clients often ask how they can put a commercial property into their SMSF without having to use cash in the SMSF, or raise cash by selling securities.

The answer is by using a ‘transitioning’ strategy. Please take the time to read the below actual client example.

The client

Aiden and Zoe*, both in their mid-50s, came to us, seeking advice on how to best take advantage of their investments that they thought were both underutilised and not tax-effective. They owned a valuable commercial property, a comfortable residence, and an investment portfolio, with each holding their superannuation in industry funds.

They lead busy lives and were looking for a wealth management strategy that would allow them to spend time enjoying life rather than worrying about their wealth and were interested to understand the benefits of transitioning commercial property into an SMSF.

*not their real names

Our solution

We developed a multi-faceted wealth management strategy tailored to their needs. The section covering the transitioning of the commercial property into the SMSF had the following features:

SMSF: we proposed establishing an SMSF, allowing them to:

  • capture the better tax management opportunities of an SMSF
  • tailor their investments to suit their objectives and preferences
  • provide more flexible estate planning
  • rollover their existing superannuation funds
  • provide an efficient vehicle to hold the commercial property

Commercial Property Transfer: we proposed they restructure the ownership interest of the property to provide better tax outcomes.

To leverage the property’s future value within superannuation, we suggested a multi-year plan to gradually transfer ownership from Aiden to the SMSF as a “tenants in common” arrangement. This strategy utilised catch-up contributions to offset Capital Gains Tax (CGT) implications and the annual superannuation contribution limits. The strategy was planned to take 9 years. An essential part of the strategy was to calculate a ‘breakeven’ scenario to assess the upfront CGT cost (also optimised by use of tax deductible catch-up contributions) compared with the long-term tax saving in the SMSF.

All the recommendations were accepted.

How transitioning works

What was special about this SMSF strategy

  • The plan to transition the commercial property ownership from personally held to the SMSF over a period of a number of years under a tenants in common arrangement (lawyers engaged to prepare documentation)
  • Utilising catch-up contributions to offset the realised CGT upon transfer of assets between structures.

The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation, or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.

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