Join Australia's most dynamic and respected property investment community

SMSF and unit trust for a medical clinic

Discussion in 'Accounting & Tax' started by XtraFL, 9th Aug, 2015.

  1. XtraFL

    XtraFL Member

    Joined:
    19th Jun, 2015
    Posts:
    20
    Location:
    Melbourne
    I have been looking to purchase a commercial property (medical clinic) under my SMSF and rent it back to my business. I am in the medical profession and a colleague is also looking to do the same. We are planning to go in halves. At the point of property acquisition we will also start sharing secretarial and other outgoings such as software and system maintenance. Currently we each rent our business premise from other clinics and pay our expenses separately.

    Trying to put it into practice and we started surfing the real estate pages a few months ago. It makes perfect sense on a high level.

    Current balance in my SMSF is around 250K. My business partner has a similar balance in an industry superfund. We both have good income and some exposure to property. I am the more highly leveraged of the two.

    Interestingly a property came up for sale and it is currently leased to allied health tenants for another few years. It is in a good location and we can both see ourselves moving into this place when the lease expires. The first problem is that we will need to change the permit from allied to medical in a few years. The second problem is that it will cost 1.4M to buy. Earlier we dismissed it for 1. being too expensive, 2. being a going concern not vacant possession; 3. residential yield at 50Kish annual rent to hold for a few years.

    We are just starting to look at a bit more closely as it is in a good location with decent parcel of land.

    For the accounting and finance gurus out there.

    Is there anyway of structuring this with a combination of SMSF, personal money, banks' money and going in halves? The end outcome would ideally be in a few years by the time we move into this place we have all ownership under our independent SMSF at 50-50 split and start paying a good healthy rent into it.

    Is there any problems with SMSF and a geared unit trust? Is there any problems with SMSF holding property changing from allied health clinic to medical clinic (ie: slightly changing the use of the property).
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,165
    Location:
    Gold Coast
    finance wise................. its all possible, but has implications around the "joint and several liability" issues that most peops dont discover until too late

    ta
    rolf
     
  3. RPI

    RPI Property Lawyer, Town Planner Business Member

    Joined:
    19th Jun, 2015
    Posts:
    713
    Location:
    Brisbane
    I will let the finance guys answer your question on property side. Service trust will be your friend for your office expenses. Still very common amongst medicos, we do at least 1 a week.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,005
    Location:
    Sydney
    What about the legal gurus? This is essentially a question about super law.

    Yes there are problems with a geared unit trust because one of you will control it. Some lawyers think this can be done, but it is delicate area. A third non related SMSF could make it work as no one SMSF will control the trust.

    There are also many ways to structure such a purchase
    • 2 x SMSF Trustees (of separate funds) as tenants in common. (each of you have your own SMSF)
    • You personally and one or more SMSF trustees as TIC.
    • One SMSF Trustee for one SMSF with 2 of you as members.

    You have to tie the structure in with the ability to borrow.

    Seek legal advice - Try DBA Lawyers.
     
  5. XtraFL

    XtraFL Member

    Joined:
    19th Jun, 2015
    Posts:
    20
    Location:
    Melbourne
    Interestingly I was reading stuff from DBA website when you posted. The more I read the more I got confused.

    I got there by googling 'SMSF and unit trust'. So they have some authority it seems.

    Will speak to my accountant tomorrow and may need to call DBA too.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,005
    Location:
    Sydney
    Superannuation law is very complex and this area is extra complex as you will need advice on multiple areas of law besides super too - and it has to be tied into the borrowing side and the tax side as well.
     
  7. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

    Joined:
    24th Jun, 2015
    Posts:
    227
    Location:
    Philippines
    Not legal or financial advice as you will probably need an SOA. Just some thoughts

    1. look at an unrelated unit trust. units trusts dont have appointors so have to look at control. S70E(2) of the SIS Act discusses control. 50% isn't control MORE than 50% is. "where a member or group of related parties with the member hold more than 50% of the income and capital entitlements of the trust

    Look at gutteridge case. Even DBA says 50/50 may be fine with an unrelated unit trust. But the key is documentation !!!

    2. question is whether the other "partners" are related parties. not enough facts to know.

    3. Unrelated Unit Trust can do the borrowings if required. As Terry says thats a loan issue. Will they lend to the unrelated unit trust. broker question really
     
    Last edited: 10th Aug, 2015
    Foxy Moron likes this.
  8. XtraFL

    XtraFL Member

    Joined:
    19th Jun, 2015
    Posts:
    20
    Location:
    Melbourne
    Hi Mike,

    Spoke to DBA today and they confirmed the first point you are making. 50/50 is ok but need good documentation.

    Intention now is to put it under contract and sort this out.

    Whether offer is accepted or not is another thing.

    Thank you for all your valuable input.
     
    sanj likes this.
  9. BennEznElle

    BennEznElle Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    83
    Location:
    Adelaide
    I hope you have everything set-up before you make your offer!
     
    MikeLivingTheDream and Terry_w like this.
  10. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

    Joined:
    24th Jun, 2015
    Posts:
    227
    Location:
    Philippines
    yes you would want all the structure setup well before making an offer. otherwise could be very costly or nigh impossible to change.
     
  11. Big Red

    Big Red Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    109
    Location:
    Melbourne
    You need to seek a Financial Planner as you will need an SOA.

    Things to think about
    1. Are both of you purchasing withing smsf
    2. You have LVr requirements in non recourse loans
    3. How long do you plan to own it - i.e. do you want to use it for the no capital gains tax benefit etc.
    4. Setting up the structure before making an offer

    SMSF's ability to purchase was designed for business owners to use it to buy business real property. I see your in Melbourne so if you need any assistance I am happy to help.
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,392
    Location:
    Sydney
    A widely held unit trust is common for medical, professional suites incl lawyers, accountants and RE agents (commercial). You will need a range of qualified people to guide you...Mortgage broker, lawyer and tax and super. The key one is a licensed financial adviser for One thing wrong could be a serious problem.
     
  13. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    641
    Location:
    Sydney
    As a side note you can do 90% LVR for IO and 95% if its P&I.
     
  14. Redwood

    Redwood Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    342
    Location:
    Melbourne
    Hi there- quick question - why do they need a Financial planner or SOA? The financial planner would be the last person - after a mortgage broker, tax specialist (who also knows SMSF law/ requirements) and of course as Terry will advocate, a lawyer to sign off on the structure overall.

    Cheers Ivan
     
  15. Big Red

    Big Red Well-Known Member

    Joined:
    29th Jun, 2015
    Posts:
    109
    Location:
    Melbourne
    As part of borrowing in an SMSF the lender will want to ensure there is an FP providing advice in relation to the borrowing. The FP will provide a Statement of Advice in relation to what the SMSF is doing and if it make sense. I.e. the FP recommends if the whole strategy makes sense and is in the best interest of the members of the SMSF.
     
  16. Redwood

    Redwood Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    342
    Location:
    Melbourne
    Hi there - no current SMSF lenders require a SOA for a borrowing. St George removed the "financial advice" / RG146 sign off requirement and AMP withdrew from the market altogether (they required a SOA).

    If they query if it makes sense - they will ask for a SMSF auditor or lawyer sign off on the structure before settling the loan - to put the liability on the external party for SIS compliance

    Cheers Ivan
     
    Foxy Moron likes this.
  17. Foxy Moron

    Foxy Moron Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    134
    Location:
    Regional QLD
    Some very professional responses here in relation to your question about using the geared trust pathway if you jump through all the proper hoops.
    Don't have the full background of course but it might also pay to investigate an ungeared trust pathway as well. Much harder to get up because the property can't be offered as security of course. But if you could swing it with other personal equity positions your 50% of units could be owned by a combination of your SMSF and you personally. Over time you load up your SMSF with tax-effective dollars and it eventually buys more units from you. Just putting it out there for discussion. Not to be taken as personal advice of course. Blah blah.
     
  18. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

    Joined:
    14th Jun, 2015
    Posts:
    2,106
    Location:
    Sydney & Adelaide
    On a SMSF loan on a commercial premises?
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,005
    Location:
    Sydney
    With the geared unit trust it would be the unit trust that is borrowing not the SMSFs - which would be subscribing to buy units in the unit trusts. I don't think a SOA would be necessary from a lender point of view, and as Redwood says is still not required usually by a lender.

    It may still be a good idea to get a SOA though.

    Is this legal or taxation or financial advice?

    I really don't know!

    SIS Act stuff relates to legal advice as it is interpretation of legislation. Tax agents can give legal advice in relation to tax legislation, the SIS Act is administered by the Commissioner of taxation so I think registered tax agents can give advice in relation to this. Financial Planners can give advice on financial products and super is a financial product as are SMSFs.

    I think any drafting would need to be done by lawyers, structuring advice about super funds by lawyers, company advice by lawyers, but anything else by either of tax agents, lawyers or financial planners.

    And I forget about brokers. None of the above can advise on the loan aspects, only brokers can.

    Isn't it confusing.
     
  20. XtraFL

    XtraFL Member

    Joined:
    19th Jun, 2015
    Posts:
    20
    Location:
    Melbourne
    Thank you for all the responses.

    The ungeared pathway would work for my business partner but doesn't work for me as all my cash/equity outside super is tied up in other ventures.

    Yes my understanding is that the set up for the unit trust has to be absolutely perfect. And today after talking my accountant he also recommended DBA lawyers for the set up of this particular unit trust. Only after securing the property though as it will cost $$$x.

    I said 'why so much?' and his response was a laughter and 'because they are lawyers, just like you are medical specialists!'. So now I know I don't charge nearly enough.

    Shahin are you serious about these LVR with a unit trust and an SMSF in the mix buying an existing commercial premise?

    In Victoria I believe it is possible to put a property under offer using personal name X + personal name Y +/or nominees and later do a nomination form no later than 14 days before settlement date with the SRO. Our intention is to put it under contract with and/or nominee and a finance clause of say 21 days. Then go down the pathway of getting the unit trust set up etc.