As outlined in our ‘when to buy vs rent a business premise’ article, the complex decision of whether to continue to lease or buy a business premises is one that the majority of business owners will need to consider.
Once you have considered the four key elements to buying a premise, it’s important to turn your mind to structuring of the property asset and the options available.
How can I structure to keep the property asset protected?
It is recommended that passive assets, such as commercial property, are owned in a separate structure to your business. This ensures the asset is protected should the business face financial difficulties.
Structuring options include (but are not limited to):
1. Personal
Buying a premises in your own name is generally the ‘cheapest’ option as there are no fees to set up or maintain a structure. However, the property then forms part of an individual’s ‘asset pool’ which means it may be at risk from litigation/creditors.
2. Trust
Holding property in a Trust offers asset protection. A Trust also gives flexibility to distribute the rental income earned across the family group. The 50% CGT discount can be obtained if the capital gain is distributed to an eligible individual beneficiary.
3. Company
Holding property in a company offers asset protection and also a capped tax rate of either 25% or 30%. However, the 50% CGT discount is foregone if the property is sold for a capital gain.
4. Self-Managed Superannuation Fund (SMSF)
A SMSF may be able to purchase your business premises, subject to the Deed and Investment Strategy of the SMSF. A business property purchase in a SMSF may be funded by cash or via a Limited Recourse Borrowing Arrangement (LRBA) (i.e. a loan to the SMSF). Obtaining an LRBA is becoming increasingly difficult with many banks opting to not offer an LRBA product. In addition, LRBA’s generally require higher deposits and shorter loan terms than other loans.
Unsure of the structuring options available for your property asset?
BDO’s Real Estate and Construction specialists are ready to help with your structuring needs. Get in touch to explore which option is best suited to your business.