There can be benefits in doing this but there are also costs associated particularly with –
- transferring the asset into the SMSF; and
- the complex ongoing compliance regime for SMSFs
In the past month I have come across good examples of both points.
A client had heard of the benefits of transferring his business premises into his SMSF and better still, that it could be done for only $50 stamp duty. As usual, the devil is in the detail. A short discussion revealed that-
- For various reasons, the stamp duty concession would not apply taking the potential stamp duty cost from $50 to approximately $60,000.00;
- The transfer would trigger a significant capital gains tax cost; and
- He was unaware that if the business premises were transferred to the SMSF , they could no longer be used for financing his business.
The other example involved a lease of business premises already owned by a SMSF to the operating company of the business owner.
This client was aware in general terms of what are sometimes referred to as the “arms length” rules. These rules provide that a related party transaction (in this case the lease ) cannot be on less favourable terms to the SMSF than would be the case if the SMSF was dealing with an unassociated party.
He did not wish to pay less than a market rent . He had reached the stage in life when he was trying to maximize his retirement income and get every cent he could into his SMSF. He wanted to pay a rental that was vastly more than the market rental.
From a superannuation law viewpoint, the danger was that the excess rental component would be regarded by the ATO as a contribution to the SMSF on his behalf rather than a rental receipt . As the client was already contributing all he was able to into superannuation, excess contributions tax would have been payable at an effective tax rate of 46.5% on part of the excess rental and 93% on another part.
In summary, any proposal involving the transfer of assets into an SMSF or a dealing between a SMSF and a related party needs to be carefully considered before it takes place. Expert legal, tax and financial advice should be taken.
At Everingham Solomons we have the expertise in superannuation, tax and business laws to help you because Helping You is Our Business.
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