If you are a business owner currently renting a business premises you should give serious consideration to buying your own business premises, according to commercial lawyer ROBERT STARKE.
Baker Love Lawyers recently acted for a business owner who, in consultation with an accountant, financial planner and mortgage broker, made a decision to stop renting and purchase a business premises as soon as practical.
This purchasing structure is highly advantageous from a taxation and asset protection standpoint and it is primarily for these reasons that SMSFs are popular investment vehicles in Australia.
The key advantages
The key advantages which prompted our client to purchase a business premises were as follows:
- Historically low interest rates;
- Avoid rising rental prices;
- Certainty of securing a long term business location;
- Ability to customise the premises without the landlord’s consent;
- Taxation advantages and benefits of the property’s capital growth;
- Increase the value of the business and the net wealth of the business owner; and
- Retirement planning.
The purchasing entity
Our client was faced with deciding whether to buy a business premises in an individual name, a corporate entity, a trust or a self-managed super fund.
A decision was made to establish a self-managed super fund (SMSF) and purchase the business premises through the newly established SMSF.
The SMSF then rented the business premises to the business whereby the SMSF pays 15% tax on the rental income (instead of the business owners marginal tax rate which could be up to 45%), or nil tax if the business owner is over 60 and receiving the rent as an income stream for retirement.
Our client is also able to claim:
- construction costs using a tax depreciation report;
- income tax deductions;
- loan interest and GST credits for maintenance and running costs;
- GST costs on the purchase price of the property; and
- other related expenses.
From an asset protection perspective, the premises is owned by the SMSF (and not the business owner or a related corporate entity), and if the business fails the business premises would therefore be protected from bankruptcy or liquidation proceedings.
If you have already purchased your business premises, do not fret as you may still be able to transfer your business premises to your SMSF and benefit from capital gains tax business concessions on business premises to minimise or eliminate tax.
Prior to purchasing your own business premises, you should consult with your accountant, financial planner and mortgage broker to discuss the applicable advantages and disadvantages in your circumstances.
We would be pleased to discuss your circumstances and, if necessary, introduce you to reputable professionals so that you are well equipped to build long term wealth and make informed financial decisions.