Business Real Property

Business Real Property is one area of the Australian superannuation legislation where concessions abound. However, it is vitally important to ensure that the requirements of the Superannuation Industry Supervision Act 1993 (SIS Act) are satisfied under Section 66 (5) in order to ensure that the concessions are available to your SMSF without adverse repercussions.

Business Real Property Concessions

Concessions are available for real property which is used “wholly and exclusively” in one or more businesses, as the name implies. Providing an asset satisfies this definition, an SMSF may be allowed to acquire this asset from, or lease this asset to a related party without breaching the prohibition on related party asset acquisitions (Section 66 (1) SIS Act) or creating an ‘in-house asset’ (see in-house assets). Business Real Property may be acquired by an SMSF from a related party, where the fund provides consideration that reflects the true market value of the property. The property may also be leased to a related party on commercial terms at an appropriate level of rent so as to reflect the market rate.

Satisfying the Requirements

‘Real Property’ here refers to land over which a specific title can be held and includes anything fixed to the land, such as buildings, fences and bridges.

‘Whole and Exclusive’ use of the property in one or more businesses excludes the property from being used for anything other than business purposes. It could not therefore provide residential accommodation (unless this is the business being operated from the premises). Where the property is used for primary production purposes however, a private dwelling is permitted, providing it is not situated in an area of land more than 2 hectares and providing it does not constitute the main use of the whole property.

The ATO have provided further clarification in SMSFR 2009/1 on when an asset may/may not apply the Business Real Property exemptions, including 37 specific examples.

Business Real Property is not exempt from the general prohibition on borrowing in an SMSF, except to the extent that the borrowing is a limited recourse borrowing arrangement in line with Section 67A of the SIS Act.