With many major banks withdrawing from superannuation lending, purchasing property, including practice premises, in a Self-Managed Superannuation Fund (SMSF) is a hot topic.
In a post Royal Commission environment, the Big Four are no longer interested in exotic lending. SMSF borrowing is strongly on the radar of treasury and the federal Government as a negative influence on housing affordability so it may be worth turning your mind to this sooner rather than later. Of course, any decision in this space should be made after consultation with an appropriately qualified Adviser.
The purchase of practice premises is rarely just an investment decision. It is also a commercial business decision. The cost to set up your own practice is high. The risk to a practice in having to move premises, possibly under short notice, or soon after acquisition, is so high that it would be considered an unacceptable commercial risk – hence why most Practitioner’s buy when they can.
As with the common reliance on external debt funding to acquire assets, borrowing to buy practice premises is just as common. Choosing to utilise an SMSF to acquire premises is normally due to a combination of factors which include but are not limited to:
- You have enough money in superannuation from your days as an employee or contractor to fund the deposit and perhaps stamp duty on premises, but do not have this capital external to Superannuation.
- You want to make superannuation contributions as part of your financial plan on a regular basis. These contributions could be used to pay down the loan on the practice premises thus yielding a safe investment of return of, for instance, 6%, which could be the interest on the loan.
- The practice premises are a lifetime asset. This is likely to align with your strategy for retirement and superannuation. Plus you have the opportunity to capitalise on property ownership.
- The cost on rental to a third party, if applied to your own SMSF as landlord, is enough to service the loan and the interest on the property with a zero loss/gain sum. So why wouldn’t you do it?
- Taxation benefits in retirement – the SMSF in pension mode may be able to pay a tax-free pension to the practitioner in retirement.
- Asset Protection.
- The tax rate in super is only 15% lower than individual tax rate.
- This can also be appealing if you already own your own rooms. You may be able to sell your rooms to your own SMSF on commercial arm’s length terms.
If acquiring practice premises is on your radar, as it should be, have some early conversations with your accountant and lender on the process and structure involved in SMSF lending. It’s not for everyone, but if its right for you it might be time to reflect on bringing forward your plans. Did you know Credabl can lend up to 90% of the purchase price of your own rooms, that means as little as $100k in Super is required to purchase premises worth $1m. Contact us to find out more.
For more information contact Credabl on 62801254