TBC impacts real property holdings

transfer balance cap business property

Holding business real property inside an SMSF may not be as advantageous as it once was due to restrictions imposed by the transfer balance cap.

A senior technical services expert has recommended advisers reconsider their approach to holding business real property inside an SMSF in the wake of the transfer balance cap being introduced.

Speaking at SMSF Professionals Day 2019, co-hosted by selfmanagedsuper and SuperConcepts, in Sydney last week, SuperConcepts SMSF technical services executive manager Mark Ellem said in the past advisers would have been justified in favouring holding business real property inside an SMSF, but the implementation of the super reforms has added a new consideration to that strategy.

“In the past we could have the building in the SMSF and no matter what value it was we could sell it when the fund was totally in retirement mode and we would get the proceeds from the sale of that asset totally tax-exempt because it would be sold as part of the pension account,” Ellem said.

“But because of the transfer balance cap restrictions, now we may not have that luxury. We may not have the total capital gain on the sale of the asset held by the super fund tax-exempt – we may be paying some tax.”

He pointed out this situation means holding business real property outside of an SMSF may now be more tax-effective because a sale under these circumstances could have the proceeds qualify for favourable tax treatment under the small business capital gains tax (CGT) relief provisions.

“So the issue there is when we are advising our clients on that and they come to us and say I want to buy a new business premises, we now have to ask them have you considered purchasing the property outside the fund as to whether you would qualify for the small business CGT concessions,” he said.

“Now again we’re talking about a long time down the track, and who knows what the rules will be then, but we can only advise on what the law is today and I think we should be advising our client there is an alternative to holding the asset inside of super and here are the two options that need to be considered.

“At the end of the day, if a client makes the decision to hold the asset inside of super, then they would have made the decision knowing that there was another option.”

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