Business Real Property

"are you aware that a smsf has the ability to purchase business real property from the funds related parties ?"

What is business real property ?

The information listed below is a summary and is intended to be of a general nature only. It does not take into account your individual circumstances or the specifics of your existing superannuation fund.

The below information is not intended to be comprehensive and we recommend that you seek professional advice that will take into account and address your personal circumstances.

Understanding the meaning of business real property in relation to an SMSF is important. Business real property is exempt from the rule that does not allow trustees from acquiring assets from related parties. Business real property that is subject to a lease between the fund and a related party is exempt from the in-house assets rules. An in-house asset is:

  • a loan to, investment in or lease with a related party, or
  • investments in a related trust of the fund.

Generally, business real property of an entity relates to land and buildings used wholly and exclusively in a business. In the context of the business real property definition, incidental or ancillary use of the property is allowed and occurs where the primary use is for business, but there is some use that could be described as supporting the primary use, that in isolation would not meet the statutory test.

A fund can purchase up to 100% of the fund’s total assets in the form of business real property, provided they purchase the assets at market value. Trustees must ensure that the level of investment in business real property is in line with the fund’s investment strategy, including:

  • diversification of assets
  • liquidity
  • maximisation of member returns in the fund

If a fund invests 100% of its assets in business real property, trustees must ensure that the fund continues to meet these requirements, for example, they must ensure the fund has sufficient liquidity to meet its liabilities (such as pension payments).