Using an SMSF to buy property either with cash or via a Limited Recourse Borrowing Arrangement is an increasing popular choice for Australians. A common place to begin this research is to consider moving individual investments into an SMSF. In most cases this will be a residential investment property or main residence.
An SMSF can only acquire assets from a related party in certain circumstances. The circumstance where an SMSF can successfully purchase an asset from a related party is if the asset is:
a listed security (for example, shares, units, or bonds listed on an approved stock exchange)
business real property
an in-house asset, provided the market value of your SMSF’s in-house assets does not exceed 5% of the total market value of your SMSF’s assets
an asset specifically excluded from being an in-house asset
So, an investment property will most commonly be residential, commercial, or industrial. Business Real property is defined as land and buildings used wholly and exclusively in a business. Generally commercial and industrial will easily meet this definition but rarely will a residential property. There are some exceptions such as a farm the meets certain requirements.
So, if you are thinking of transferring a residential property into your SMSF, think again. It is only in very limited circumstances that it won’t breach the rules and fixing this error can be create some very costly unwanted outcomes. For instance, say you were feeling some financial pressure, and you get some Facebook group advice, or you hear that you can use your super to buy your family home. This gets you out of some personal financial problems, you pay off some debts. Then you get your annual SMSF audit done, and the Auditor picks up the breach and reports it to the Australian Taxation Office (ATO). The ATO advises that the breach needs to be rectified and the only way this breach can be reversed is to get the property out of the SMSF i.e. you need to sell it. It is likely that you are no longer in a position to buy the property back out of the SMSF and you will need to put the house on the market. An extremely poor outcome for you and your family.
It is important when thinking about how to manage your retirement savings that you seek professional advice, both from a Licensed Financial Adviser that can tell you if an SMSF is right for you and an SMSF Accountant/Administrator that can tell you what you can and can’t do with your super. Speak to one of our team today - book in a call
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