Before you invest in property through a self-managed super fund (SMSF) you really need to know the rules.
The property needs to satisfy the ATO’s sole purpose test, guidelines that trustees need to follow when making decisions regarding their funds’ investments.
Essentially, the sole purpose of assets within the SMSF must be to provide retirement benefits for its members.
To help guide your SMSF property investment we’ve pulled together some tips and things to consider.
SMSF property investment
- The asset or property purchased must be a single acquirable asset as defined by the superannuation law, rather than several assets, or several properties.
- The property can be a residential or commercial property and must be a single title of more than 50 sqm.
- Residential property cannot be purchased from a member of the SMSF, or a related party, like a business partner or spouse.
- Residential property must be strictly for investment purposes and cannot be the place of residence, or a holiday home for you, any other trustee or anyone related to the trustees.
- Residential property must be tenanted but not by a member of the fund or any family member.
- Investors who already own a residential property cannot transfer it into an SMSF.
- Investing in commercial property through your SMSF offer more advantages and flexibility than residential property.
- Funds may apply for a specific SMSF loan to purchase commercial property. This loan type has some tighter leading criteria to traditional lending.
- Commercial property can be your place of business where the SMSF buys the property then leases the property to a fund member or a related party.
- Leasing commercial properties to related parties must be done on the same terms as it would be to an independent third party including formal lease arrangements and terms. Market rate rent needs to be paid periodically, promptly and in full.
- Commercial properties can be sold to an SMSF by its members, unlike residential property. Contributing and transferring commercial property to an SMSF may carry tax implications including stand duty and capital gains tax so seek professional advice before acting.
- SMSF held property needs to periodically independently valued.
There are numerous tax effects associated with buying and renting SMSF property that a tax professional can assist in navigating.
International property investment
- Overseas property investments are permitted; however, consideration needs to be given to the laws within that country.
SMSF trustees need to provide annual financial reporting dated at 30 June each year. This reporting must contain the market value of all property assets, based on objective, supportable, and verified data.
This is where the team at Acumentis can assist. Our SMSF property assessment is a cost-effective and efficient valuation of your SMSF property assets that is compliant with the ATO’s reporting requirements.