Property in a Self Managed Super Fund
A unique characteristic, compared to other types of superannuation options, is a Self-Managed Super Fund’s (SMSFs) ability to invest in Direct Property. This makes SMSFs attractive to investors with an interest in property investment.
Whilst this is a benefit of using a Self Managed Super Fund, investing in property does come with some complexity and strict rules.
What are the Rules?
Purchasing a property in an SMSF needs to meet the Sole Purpose Test. Section 62 of the SIS Act requires the Trustee of an SMSF to maintain the fund solely for the purpose of providing retirement benefits to the members. This means that all investments made by the SMSF must meet this Sole Purpose Test, including investing in Property.
Related Party Transactions
There are specific rules regarding related parties when investing in direct property with an SMSF.
Read the ATO’s guide setting out who is a related party here - https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/investing/restrictions-on-investments/related-parties-and-relatives
The rules in SMSF when it comes to related parties and property are:
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A residential property cannot be purchased from or leased to a related party
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Business Real Property can be purchased from and leased to a related party but Market Value needs to be paid in both circumstances
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All transactions must be at arms-length which includes timing of payments
Types of Property
You can buy all types of property in an SMSF. This includes:
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Commercial Property
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Residential Property
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Vacant Land
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Farms
What is Business Real property?
Business real property generally mean a property that is used wholly and exclusively in a business. Most commonly this will be commercial or industrial property but can also include farms if certain conditions are met.
Borrowing to investment in property in an SMSF
SMSF borrowing has become increasingly popular. This is by an arrangement known as a Limited Recourse Borrowing Arrangement (LRBA). An LRBA requires additional structures to be established – Custodian company and Bare Trust. The SMSF can then take out a loan if certain conditions are met. The property will be held in the name of the Custodian as Trustee for the Bare Trust until the loan has been extinguished. Rental Income and Expenses will be received and paid by the SMSF.
Find out more about how Lifetime SMSF can help you manage your SMSF here
The information contained in this website is purely factual in nature and does not take account of your personal objectives, situation, or needs. The information is objectively ascertainable and, therefore, does not constitute financial product advice. It is not intended to be financial product advice, legal advice, or tax advice and should not be relied upon as such. It is provided for the use of a Self-Managed Superannuation Fund Trustee or a person who has already made the decision to establish a Self-Managed Superannuation Fund only. In no circumstances, is it to be used by a person for the purposes of making a decision about establishing a Self- Managed Superannuation Fund. Lifetime SMSF Pty Ltd is not licensed to provide financial product advice under the Corporations Act 2001. If you require personal advice you should consult an appropriately licensed or authorised financial adviser. Liability limited by a Scheme approved under the Professional Standards Legislation.
