Should you buy the building you trade from?
Owning the site changes your debt profile, your tax position, your lease risk and your sale price — usually all at once, and not always in the same direction. A framework for working out whether it stacks up.
Updated August 2026
It is the question almost every established pharmacy owner eventually asks, usually about three years before they should have. Owning the site changes your debt profile, your tax position, your lease risk and your eventual sale price — generally all at once, and not always in the same direction.
The case for buying it
It removes the largest single risk in a pharmacy valuation. As we have written elsewhere, lease term is the most common reason a finance application stalls and a common reason a sale price gets discounted. If you own the building, the lease risk becomes a lease you write yourself.
It creates two assets instead of one. At exit you can sell the business and keep the property as an income stream, sell both to the same buyer, or sell the property to an investor and the business to a pharmacist. Optionality has value.
It converts rent into equity and gives you control over layout, refit and expansion without a landlord conversation. For a business where the dispensary footprint and consulting rooms increasingly drive revenue, that is not a small thing.
The case against
Capital has alternative uses. The deposit and holding costs for a commercial site are frequently the same capital that would fund a second pharmacy. A second store usually produces a higher return on equity than the building your first one sits in.
Concentration. Your income, your business goodwill and now your largest investment asset all depend on the same street corner.
Illiquidity. A commercial property in a secondary location can take a long time to sell, and it will not be sellable on the timetable your retirement wants.
The trap almost nobody models
Buying the premises can cost you the small business CGT concessions on the sale of your business.
The gateway to those concessions for most pharmacy owners is the maximum net asset value test: the net value of CGT assets held by you, your connected entities and your affiliates must not exceed $6 million. That threshold is not indexed for inflation. Adding a commercial property to your balance sheet can push you through it — and the concession you lose on the business sale can be worth considerably more than the property earns.
This is entirely modellable in advance. It is also almost never modelled in advance.
Victoria changed the arithmetic in 2024
If the property is commercial or industrial and in Victoria, the Commercial and Industrial Property Tax reform applies and it materially alters the numbers.
Where a qualifying transaction occurs on or after 1 July 2024, land transfer duty is payable one final time on that transaction. Ten years after that settlement, the property moves to an annual Commercial and Industrial Property Tax of 1% of the property’s unimproved land value, with no tax-free threshold — and from that point the land never pays transfer duty again on subsequent sales.
Eligible purchasers can also access a government-facilitated loan through the Treasury Corporation of Victoria to spread that final stamp duty over the ten-year transition in fixed instalments, subject to eligibility criteria including a purchase price cap.
The practical effect is that the reform shifts cost from a large one-off payment at purchase to a recurring annual charge that begins a decade later. For an owner who intends to hold the site through to retirement, that is a genuine change to the hold calculation and needs to sit in the cashflow model rather than a footnote.
Three ways to hold it
| Where it sits | Why people do it | What it costs you |
|---|---|---|
| Inside the trading entity | Simplest at the time of purchase; one loan, one entity. | Usually the wrong answer. It entangles the property with trading risk, complicates the business sale because the buyer does not want the building, and can compromise access to concessions on either asset. |
| Personally or in a trust | Clean separation from trading risk. Rent is deductible to the business. The 50% CGT discount is available to individuals and to trust beneficiaries on eventual sale. | Rent is assessable income each year at marginal rates, and the asset counts toward the $6 million net asset value test. |
| In a self-managed super fund | Business real property is one of the few assets an SMSF may acquire from a related party. Rent paid by the business is deductible and taxed concessionally in the fund; capital growth is taxed concessionally too. | Rent must be at market and the lease strictly at arm’s length. Borrowing requires a limited recourse arrangement, which is complex and not offered by every lender. Contribution caps, fund liquidity and diversification all bind. |
The SMSF route is the one owners hear about at conferences and the one that most often needs the closest look. It can be excellent. It also concentrates your retirement savings into the same building your income already depends on, and it is unforgiving of paperwork.
“Owning the premises changes the exit as much as owning the business does. The question is not whether it is a good asset. It is whether it is the best use of the next dollar you have.”
Five questions that settle it
- What else would this capital do? Compare it honestly against a second store, a refit, or simply paying down goodwill debt. If the building wins on that comparison, buy it.
- What does it do to the $6 million test? Model your net asset position with and without the property, projected to your intended exit year.
- How long do you intend to hold it? Under about seven years, transaction costs and the duty position usually make leasing better. Through to retirement, ownership usually wins.
- Can the business genuinely afford market rent? If the arithmetic only works at below-market rent, you have not bought an investment — you have moved a subsidy from one pocket to another, and both the ATO and a future buyer will normalise it back.
- Does it change who can buy your business? A business with a long, clean lease from a landlord who is also the vendor is attractive. One where the buyer must also purchase the building is a much smaller market.
What we would do first
Before you make an offer, run three numbers together rather than separately: the property’s hold cost including the duty and CIPT position, the effect on your net asset value test at the year you expect to sell, and the serviceability of the combined business and property debt at a stressed rate. Those three numbers answer the question. Almost every other consideration is commentary.
Sources
- State Revenue Office Victoria — Commercial and Industrial Property Tax; entry into the reform and the ten-year transition
- Australian Taxation Office — Small business CGT concessions: maximum net asset value test
- Australian Taxation Office — SMSF acquisitions from related parties: business real property; limited recourse borrowing arrangements
General advice warning
This article is general information only. It is not personal taxation, financial, credit or property advice and does not take into account your objectives, financial situation or needs. Duty, land tax and superannuation rules change and depend on your circumstances — confirm the current position with the State Revenue Office and obtain advice specific to your situation before acting.
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