Every practice that has signed a second lease has had the conversation: why are we paying someone else’s mortgage? Buying your own premises is often the right answer for an established practice, but the structure you buy in (personally, through a company, through a family trust, or through a self-managed super fund) changes the tax, the asset protection and what happens when you retire. The purchase itself is the easy part.
The case for owning
A practice with a long fit-out life and a stable patient base is a good tenant for itself. Owning removes the two risks that most threaten a clinic: a landlord who will not renew, and a market rent review that outruns your billings. It also converts rent into equity and, for imaging or dental practices with heavy fit-outs, removes the make-good exposure that can run to six figures at the end of a lease. Against that, ownership ties up capital, concentrates your wealth in one asset class, and makes the practice harder to sell if the buyer must also buy the building.
The structure question
There is no universally correct answer, but the options behave very differently.
- Personally, or jointly with a spouse. Simple, and the least attractive at scale. The property is exposed to creditors and to any professional claim, and land tax is assessed at individual rates on your aggregated holdings.
- A company. Flat tax rate on rental income, and a clean separation from the practice entity. But companies do not get the 50% capital gains tax discount, which matters a great deal if the building is sold decades later having appreciated.
- A family (discretionary) trust. Flexible distribution of rental income and, on sale, access to the CGT discount, plus asset protection. In Victoria, trusts attract a surcharge rate of land tax unless beneficiary details are notified to the State Revenue Office, which can change the arithmetic.
- A self-managed super fund. The structure most medical and dental practices ask about, because superannuation law permits an SMSF to own business real property and lease it to a related party, a concession not available for residential property. Rent is a deductible expense of the practice and taxed concessionally in the fund; capital gains in pension phase can be tax-free. The trade-offs are real: the money is locked in super, borrowing inside an SMSF requires a limited recourse borrowing arrangement with tighter lending terms, and the lease must be on genuine commercial arm’s-length terms and documented properly.
This decision must be made before the contract is signed. Nominating a different purchaser afterwards can trigger a second liability for stamp duty, and an SMSF in particular cannot simply be substituted in later.
If you buy through an SMSF, the lease still matters
Practices sometimes assume that because they own the building through their own fund, the lease is a formality. The opposite is true. The ATO expects a written lease on arm’s-length terms: a market rent supported by a valuation, rent actually paid on time, normal outgoings arrangements, and commercial provisions for term, review and default. A fund that charges below-market rent, or lets the arrears run, risks breaching the arm’s-length rules with serious tax consequences. The lease also needs to work commercially: if you sell the practice, the buyer becomes your tenant, and the terms you set now determine what that relationship looks like.
Due diligence on the building
Buying commercial premises is not a residential conveyance with bigger numbers. Expect to examine the zoning and whether your use is permitted as of right or needs a planning permit; existing permits and whether any are about to lapse; the building’s compliance including essential safety measures, fire services, disability access and any combustible cladding; environmental and contamination history, particularly for sites that were previously industrial or a service station; GST treatment and whether the going-concern exemption applies; any existing leases you will inherit as landlord; and, for a healthcare fit-out, the structural, electrical and shielding questions covered in our guide to radiology and imaging premises.
Strata or freestanding
A suite in a medical or commercial strata building brings an owners corporation, which means levies, special levies for building works, rules that may restrict your signage or hours, and other owners who vote on what happens to the building. Read the owners corporation records (minutes, financials, maintenance plan and insurance) with the same care you would give the lease. A freestanding building gives you control and the whole repair bill.
The exit
Think about the end at the beginning. Most practitioners who buy their premises eventually sell the practice and keep the building, becoming a landlord in retirement with an indexed income stream, which is usually the point. That plan only works if the lease to the incoming owner is strong, long and assignable, and if the ownership structure lets the asset pass to the next generation without an unnecessary tax event. This is where property and estate planning meet, and where advice given at purchase saves the most.
Empower Legal Solutions advises medical, dental and imaging practices on buying and structuring their premises across Melbourne, and works alongside your accountant on the structure. Pricing is disclosed before you engage us. Book a free first consultation.
Frequently asked questions
Can my self-managed super fund buy my practice premises?
Generally yes. Superannuation law allows an SMSF to acquire and lease business real property to a related party, which is the exception that makes this strategy available to practices. The fund must comply with the sole purpose test, the lease must be on genuine commercial terms with rent actually paid, and any borrowing must use a limited recourse borrowing arrangement. Take coordinated legal, accounting and licensed financial advice before committing.
Do I pay stamp duty if I later transfer the property into a trust or SMSF?
Usually yes, and it is assessed again on the market value at the time of transfer. This is why the ownership structure should be settled before the first contract is signed rather than corrected later.
Is buying better than leasing for a medical practice?
It depends on your capital, your time horizon and your exit plan. Ownership removes renewal and make-good risk and builds equity, which suits practices with expensive fit-outs and long-term intentions. Leasing preserves capital for the practice itself and keeps you mobile. The fit-out cost is often the deciding factor: the heavier it is, the stronger the case for owning.