SuperAccess - It's Smart. It's new

Funding up to 70% of the value of a commercial property purchase in your self managed super fund. "I didn't think you could borrow in your Super Fund?" - Well that has changed.

About SuperAccess

Until now, your Self Managed Super Fund (SMSF) may not have been able to invest in your choice of property because it lacked sufficient cash to buy outright and was prohibited from borrowing. In fact, you may have even directed your capital to property outside super when it could be working harder and more tax effectively within super. SuperAccess is the solution. New super rules now permit borrowing in your SMSF. This provides the opportunity to acquire business premises using your Super Fund savings and a SuperAccess loan.

Who is SuperAccess For?

Small businesses:

Factories, workshops, warehouses;
Medical suits-doctors, dentists, vets etc.;
Professional offices-accountants, lawyers etc.;
Strip shop retailers-pharmacists, retail, franchisees

To use SuperAccess you need to:

Own or establish your own Self Managed Super Fund ("SMSF"). (If you require assistance to establish one please contact us).
Be able to contribute at least 30% of the appraised value of the property (and additional amount for transaction costs such as stamp duty etc.)
Own or be interested in purchasing a commercial property that meets our criteria (see "loan requirements" below).
Ensure that the tenant meets our simple credit checks.

How it works

SuperAccess provides up to 70% of the property's appraised value to allow a Special Purpose Trust (a wholly owned subsidiary of your Super Fund) to purchase your chosen property;
Your Super Fund funds the balance and the transaction costs (stamp duty etc. allow a further 5 - 7% of the property value);
Your Super Fund rents the property from the Trust and in turn your business (or someone else you choose) rents from your super fund.
The rent repays your loan over time.

* SMSF : ("Self Managed Super Fund")

Possible since new Section 67 4A introduced in September
Loan must be limited recourse to property

No change to restrictions on assets to be funded
Investment property
Cannot acquire residential from related party

Must be used for acquisition of property by SMSF (i.e. not refinance of property currently owned by SMSF)

If you already own a commercial property

You can now release the capital tied up in a commercial property you already own by using your Super Fund savings and a SuperAccess loan.

If your business is currently renting the premises it occupies

Buy the property using your Super Fund savings and a SuperAccess loan. The rent paid by your business for the premises will be paid to your Super Fund to service the loan and helps to provide for your retirement, not someone else's.

If you're thinking of buying a commercial property

You may have always wanted to include direct commercial property in your super fund, but couldn't fund the whole of the acquisition cost upfront, here's your chance. Substantial tax benefits are available using this structure e.g. Zero Capital Gains Tax on assets held in a Super Fund which is in pension stage.

Tax Advantages	Tax arbitrage - business gets deduction at 30%; SMSF taxed at 15% on income CGT on sale at 10% (or zero if paying a pension) Method to access retirement benefits without loss of control over premises
Estate Planning	Allows transfer of asset to next generation without stamp duty or CGT
Asset protection	Assets in SMSF protected from creditors
Business Protection	Not owning premises is effectively "shorting" the property market. Capital rationing can make this inevitable - accessing SMSF capital for premises acquisition a potential solution
Funding Source	SME owners typically have wealth tied up in the business and premises.

Some Examples

Off the rental treadmill;

Joanne, a 35 year old obstetrician, has recently started her own practice renting rooms in a medical centre on the grounds of a major hospital;
Her landlord has decided to sell the suite for $350k. Joanne is concerned that moving location will adversely impact on her young practice, but doesn't think she can afford to buy the suite;
She has few other assets, although she and her husband (also 35) both make a very good income;
They like most people their age have a large mortgage and little equity in their home. They do however have $90k in a retail master trust super fund and $40k in saving;
The couple roll their super into a SMSF and make use of their savings to make deductible super contributions ($18,680 each);
They use the savings in their super (now worth $126k) and borrow the balance using SuperAccess;
The practice continues to pay the same (market) rent as it did before;
The rent is now helping fund their retirement;
All future gains in the value of the property are concessionally taxed;
Joanne no longer has to worry about being unable to renew her lease.

Succession planning;

Tom (aged 62) operates a motorcycle workshop from premises acquired in 1991. He wants to retire and allow his son Jake to take over the business;
The property is now worth $1m and has been fully paid off;
Tom has few assets other than his interest in the business;
Tom, his wife and Jake have an SMSF with total assets of $500k;
The SMSF acquires the property using SuperAccess by paying $360k - which covers the deposit and transaction costs including stamp duty;
Tom receives the market value ($1m) which he uses to contribute to super;
No CGT is payable because of the small business retirement provisions;
Tom and his Wife can each get a tax deduction for up to $105,113 for these contributions - rest non deductible;
Tom and his wife can now receive tax free income of $85,000 pa whilst Jake pays deductible rent of $73,000 pa;

Gowing the business

John and his business partner Pete run a precision engineering business in Melbourne;
The business has been operating for 10 years and provides them with a comfortable living;
The business operates from an industrial unit owned by a unit trust and leased to the business for $9,300 per month. The units in the trust are held 50/50 by their respective family trusts;
The property was acquired 3 years ago for $1.3m is now worth $1.4m, and there is a loan of $950k;
Like most small business owners they have few other assets apart from their family homes (which are mortgaged to the bank to provide the business overdraft) and $600k in super between them and their wives;
They have recently developed a new product for which they have an Australian Patent. Pete believes that there is a significant opportunity to build up a lucrative export business; however, this would need a significant expense in getting worldwide patents and investment in building up distribution;
Pete and John consult their accountant about funding this investment. He advises them that without further security they will not be able to borrow more. He also advises them that they cannot use their super to lend to the business and suggests they consider taking on a new investor;
They are reluctant to give up control over the business they have worked so hard to build up. Then they discover SuperAccess which can allow them to legally access their super;
They roll their super into a SMSF and use $504k to acquire the property using SuperAccess;
Their unit trust receives market value ($1.4m) for the property and uses $950k of this to repay the debt. The unit trust then invests balance in the business ($450k);
Their business continues to pay the same deductible rent as before;
All future gains in the property value will then be concessionally taxed in the super environment.

Loan Requirements

SuperAccess is compliant with SIS sect 67 4A. The exemption from related party transaction prohibition for business real property applies to an acquisition from a related party and a lease to a related party. The acquisition still needs to be "arms' length". This means the transaction must include market value purchase price, market Rent, and "normal commercial terms".

To determine the purchase price we instruct an experienced independent licensed valuer to determine the value of the property. The SuperAccess loan is up to a maximum of 70% of the value of the property (65% if lease is less than 5 years). The loan is for a minimum of $150,000 and a maximum of $3,000,000.

The rent it is set based on the market rent for the property as determined by the valuer and agreed with you. The rental income must provide a 15% margin of net interest income over interest costs in the first year. Generally to obtain 70% funding at an interest rate of approximately 10% the rental yield will need to be approximately 8% (after outgoings). The tenant on the lease must have operated the business for at least 2 years and satisfy some basic credit reference checks.

Unsuitable properties include: residential, serviced apartments, student housing, construction, vacant land and rural. It may not be of a specialised nature or pose significant environmental risks. The population of the area where the property is located must be at least 25,000. (Please contact us to clarify your location if you have any doubt about this requirement).

The lease term must be a minimum of 5 years. The loan is non recourse and a super fund can never be forced to contribute more money.

Fees and Costs

Fees and costs applicable to SuperAccess are mainly those associated with buying any commercial property, i.e. Stamp Duty, Mortgage Duty, Legals, valuation etc. The costs specific to SuperAccess are listed below:

Fees and Costs	How Much
Upfront:	1.5% of the proposed funding amount.
Interest Rate:	please enquire for current rates.

Risks

All investments are subject to risk of loss. SuperAccess is a loan to complete an investment in property selected by you, and as such your ability to repay the loan is dependent upon the rental performance of your nominated property. You should exercise care in selecting the property and seek professional advice as necessary.

Additionally borrowers are exposed to interest rate risk (fixed for 5 year periods), tenant risk (the tenant may be unwilling or unable to pay the rent), and tax and legislative risk (there may be changes in laws which impact on property investments). This list is not exhaustive and you should seek professional advice as necessary before proceeding with a property investment.

Who is behind SuperAccess?

The loan arranger is Calliva Group Limited, an Australian Fund Manager. Global financial services group, Nomura Asia, is a shareholder of Calliva. The Royal Bank of Scotland (the world's 5th largest bank) provides the funding. Fyfe Corp is an originator of loans.

Next steps - how to apply

Find a property which you would like to buy;
Consult your tax adviser to review your own personal circumstances and the investment;
Contact us to commence an application;
We will arrange for an independent valuation of the property (which will be recharged to you). This may take up to 2 weeks. We will prepare a letter confirming the purchase price for the property and other key terms including the rent and loan amount. (At this stage you are not committed);
If these terms are acceptable the process becomes much like settling the sale of any commercial property and arranging for a new tenant. Your lawyers will prepare:

The contract for sale of the property (if a related party vendor);
The lease of the property to your super fund; and
Your Super Fund's lease to the tenant.

There are a number of things you will need to consider with any property transaction and you may wish to retain a solicitor to assist you.
At settlement the leases and the mortgage are signed and the loan is drawn down.

Please contact us with any further queries you may require assistance with.