Buying a property within your SMSF
Real property is a permitted investment of a SMSF. However there are different rules for business real property and residential property. Any property needs to be considered within the constraints of the fund’s investment strategy. In particular, the fund needs to take account of diversification issues, liquidity and rate of return.
Business Real Property
Business real property (including land and buildings) must be used wholly and exclusively in one or more businesses. A SMSF is permitted to acquire business real property from a related party. However the property must have no borrowing (or other charges) attached to it and must be acquired at market value.
A fund is also permitted to lease business real property to a related party without breaching the in-house asset rules. However a fund will still breach Superannuation provisions if they enter into a lease arrangement that is not on commercial terms.
Whilst a SMSF can invest in non commercial property, it cannot acquire such property from a related party. Where a fund purchases residential property it must be rented on a commercial basis. More importantly it must not be leased or rented to a related party, otherwise the asset becomes an in-house asset subject to a limit of 5% of the fund value.
A frequently asked question is, can a fund invest in a holiday home? The answer is, yes it can. However, if the home is for the use of fund members, the asset becomes an in-house asset. The house can only be let on a commercial basis to unrelated parties.
We are an independent family owned business that has specialised in Self Managed Superannuation (SMSF) for more than 30 years..
A properly structured instalment warrant is one of the permitted ways a SMSF can borrow. However, it is essential that the trust deed permits such investments. If you have an existing SMSF with an older trust deed it is unlikely that your deed will permit the fund to invest this way. It is also extremely important that before any contracts are entered into, that Trustees seek advice on this matter.
Under an instalment borrowing arrangement a fund can acquire any asset that it is already permitted to acquire and hold directly, subject to other investment restrictions such as in-house asset rules and acquisitions from related parties.
The borrowing must be used to acquire an asset held on trust. The fund holds a beneficial interest in the underlying asset with the right to acquire the legal ownership in due course.
The loan is a limited recourse loan, in that the lender cannot claim against other Superannuation fund assets in the event of a default by the SMSF borrower. The lender only has rights linked to the specific asset which is the subject of the borrowing.
The Alan Skerritt Consultancy
Windsor Holdings Pty Ltd (ACN 010 018 041 ABN 12 862 040 559)
(Incorporated in Queensland) Trustee
Nothing in this website should be considered personal advice. The information is of a general nature and does not consider your personal needs and objectives or your financial situation.