Question: My accountant recently convinced me of the benefits of my self-managed super fund (SMSF) owning the commercial property that my business operates from. I had built up my super over the years and in June/July last year I transferred a further $600,000 into my SMSF. My SMSF then purchased the commercial property that my business uses, from my former landlord. My accountant told me that I should have a commercial lease in place. I don’t see the point in doing that, it’s just another expense I can do without. Besides, it is all my money anyway. What is really necessary to document the arrangements between my SMSF and my business?

Platinum Member, Brisbane, QLD

Answer: Congratulations on making the most of your self-managed tax haven, sorry, superfund. It is hard to think of a better investment for your self-managed superfund than one which has tax benefits for your business as well.

There are a few things that you need to consider, before you get too carried away though.

1. Investment Strategy

It is essential for any SMSF trustee to ensure that a new investment complies with the SMSF’s investment strategy. Does your current investment strategy allow for the purchase of commercial property? Does it allow for your SMSF to be a commercial landlord?

Is your investment strategy up to date? During the lows of the GFC, many share values fell below benchmarks, when the index fell by over 50%. We saw many strategies that were non-complying during this time.

What happens if there is another global credit or share market shock? Given the inherent instability in the Euro Zone and the USA economy is teetering on a knife edge, many people may get caught out again. Don’t be one of them.

Why do you need an investment strategy anyway? Become a Platinum Member and you too can benefit from our expertise.





2. Update your SMSF

Update your SMSF if your deed is more than 1 year old. Rejuvenate your tired old deed into a work of art. Old deeds stick out like a sore thumb for non-compliance. Be ready to fully exploit the changes in legislation and the budget.

We regularly receive instructions to fix superfunds that have fallen into disrepair. I saw a wealthy couple in their mid 40s from Brisbane. They packed their SMSF with cash. In fact, they stuffed in too much. Their SMSF deed wasn’t updated since 2003. Unless it was from Civic Legal, deeds that old don't permit rejecting excess superannuation contributions. Bring on the 93% excess contributions tax. Now that hurts.

Our team at Civic Legal eventually and successfully challenged the ATO assessment. But it is easier (and cheaper) if the deed already had the power to reject contributions to begin with. The ATO is touchy about how such clauses are used, so tread carefully and get advice.

For our beloved Platinum Members, we lay down the most comprehensive list of every change required in Super funds since the late 80s:



If I can further clarify the above you are welcome to ring me on 08 9460 5000.
Joseph Santhosh, Civic Legal.

3. Commercial Lease

Got commercial leases on any leased SMSF property?

If you are renting property owned by your SMSF, you need a Commercial Lease Agreement. There are no exceptions to this rule. It is strictly enforced by the ATO.

As Trustees of the SMSF, you have to act in the fund’s best interest. A proper Commercial Lease at a commercial rent is part of doing the right thing. It can never be in the best interests of the fund for the fund to be exposed to risks that other commercial landlords are safeguarded against.

If you lease to a member or a related party of a member, then it is more important to have a Commercial Lease. Because the law says that SMSFs can't lease assets to related parties. The only exception is where a legally binding lease agreement exists between the parties over business real property.

4. Limited Recourse Borrowing

Do you know of a great opportunity for your SMSF to purchase an asset that is a perfect fit for your retirement investment portfolio, but you just don’t have enough dough in the fund right now?

A SMSF can't borrow to purchase property, right? Wrong. Just use a limited recourse borrowing arrangement.

Does your SMSF deed permit ‘instalment warrants’ and not ‘limited recourse borrowing’? Do you think that’s ok?

Unfortunately the law has changed. Meaning instalment warrants are old news – to be compliant you need to update your SMSF deed for the new rules.

The recent amendments to the SIS Act mean that your SMSFs can borrow for a single acquirable asset with a non-recourse loan. Platinum members get the scoop.



Thinking about limited recourse loans? Call our resident guru, Tim Pepper at Civic Legal on (08) 9460 5019.

5. Change to Corporate Trustee 

Maybe you don't want anyone else to know what assets you own. Or, your members might change often. Or, you hate paying higher land tax. I haven’t met anyone yet that actually likes paying higher taxes.

Whatever your reason, you change to a corporate trustee by doing two things:

• Set up a company and get it registered at ASIC. This takes a few days to clear and costs approximately $426. ASIC lets you know when your company is registered and assigns an ACN. If you only want to use this company as the trustee for your SMSF, consider a "Special Purpose Company". This usually has lower annual fees.
• Update your SMSF Deed. Select the option to change your trustee to a Corporate Trustee. Insert your new company's name, ACN and registered address.

• SMSF - Deed Update
• SMSF - Guide to Transacting with your own Fund
• Product Disclosure Statement (general)
• Family Trust
• Investment Strategy for Self Managed Super 10/11

• Commercial property into SMSF - what do I get out of it?
• Son Leases SMSF Commercial Property
• Personal Guarantees for Limited Recourse Borrowing Arrangements?
• More "help" on Super Gearing from ATO