Over the years we have assisted our clients with thousands of queries in relation to their financial and business affairs. While clients often have queries that are unique to their circumstances, there are some topics that come up on a recurring basis.
In response to this we have created a series of Frequently Asked Questions which will be updated as new topics arise. These articles are intended to give you background knowledge on specific topics and we encourage you to contact us to discuss the topic in further detail.
As always we are happy to talk through any strategies you may have come across or to answer any burning questions that you may have – even if it is not mentioned on this page.
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Property in SMSF
Yes! A SMSF can buy residential or commercial property, or vacant land, provided it is in accordance with the Fund’s investment strategy.
Your SMSF cannot purchase a residential property from a related party. If your SMSF holds a residential property, it cannot lease the property to a related party – even if that party pays market rent to the SMSF. There are very limited circumstances where a SMSF can lease a residential property to a related party.
Your SMSF can acquire business real property from a related party. The property can also be leased to a related party.
Business real property is effectively a property which is used in a business. It doesn’t have to be your business – it just needs to be property used ‘wholly and exclusively in one or more businesses’ carried on by any entity.
Provided the property meets the definition of business real property, it is possible for the property to be transferred to your SMSF. Stamp duty and capital gains tax may be applicable, however there are some exemptions available.
A SMSF can only borrow to purchase a new asset. It cannot offer an existing property asset as security for a new loan.
In order to borrow within a SMSF, the trustees must consider several items:
- Does the Fund’s Trust Deed allow borrowing;
- Is the geared investment in accordance with the Fund’s investment strategy
- Does the SMSF need to hold life insurance over the members? If one of the members were to pass away, does the SMSF have sufficient liquidity to continue to make loan repayments or repay the loan?
A SMSF that wishes to purchase a property using a limited recourse loan, must purchase the property using a ‘bare trust ‘ arrangement. This arrangement is quite simple, but must be in place before the SMSF enters into an agreement to purchase a property . If it is not, there is a possibility of double stamp duty or the transaction not complying with the superannuation rules.
At Everstone, we have assisted trustees in purchasing countless properties within their SMSF’s – both with and without debt. Our goal is to make the transaction as seamless as possible for you. We have established relationships with lawyers, settlement agents and mortgage brokers who can assist with the process, meaning all you really need to do is find the property that you believe is the right investment for your SMSF.