Interact
Member access
Follow
Browse
SuperInvestor TV
ยป Examples of acquiring property through your SMSF
Date published: 08/08/2011
Examples of acquiring property through your SMSF - Part II
This article is Part II in a series.
See Part I here - Acquiring property through your SMSF.
You can purchase business real property from someone previously unknown and once done, lease the property to a business you own. By way of example Erkan and his wife, Sultan, attend an auction and purchase a factory in the name of the trustee of their superannuation fund. After settling the purchase, they lease the property to ES Pty Ltd, which is a business they own.
Sajee and her husband, Sam, own a shop in a suburban shopping strip which they would like to sell to their superannuation fund. If the property was vacant at the time of the sale, it would NOT pass the business real property test because it was not being used as a business. However, if someone was renting the shop and operating a going concern such as a cafe, it would qualify as a ‘business real property’ and their SMSF could purchase the building.
When you can lease the property to either an associated party or an arm’s length tenant, a lease should always be drawn up and commercial rent paid, regardless of whether the tenants are members of your fund or not.
Note: If there is an existing tenant the lease must be changed to show the SMSF trustee as the new landlord. Also if your tenant is to pay rent direct to the owners (the fund), your new bank account details will need to be provided.
While SMSFs are prohibited from buying residential property from fund members or from people, companies or trusts members are ‘associated’ with, they can purchase residential property from people and entities where there is no association.
Unlike business real property (which can be leased to associates); residential property investments cannot be occupied by fund members or their family, irrespective of how much rent is paid.
This may seem unfair in that family members would be paying the same rental as someone with no association but, trust me, it prevents a lot of heartache. During my time in the industry I have come across numerous instances where there is no lease and no expectation that rent will be paid, often as a result of members providing their children with somewhere to live.
Using the SMSF’s assets for this purpose is a serious breach of legislation and fails to comply with another test – the ‘sole purpose test’.
To pass the ‘sole purpose test’ an SMSF’s primary purpose is to provide fund members with benefits when they retire or their beneficiaries with benefits should they die early. If the main purpose of an investment property is to provide your adult children with a home, then you will fail the sole purpose test.
If you are uncertain ask your accountant or superannuation adviser because, apart from the potential legal problems, it could prove costly to rectify.
This article was Part II. The next article in this series will be about renting and leasing investment properties...
Ms Lesley A Williams
Director - Major Street Publishing
This article is a chapter excerpt from: How to Invest in Property Through your Self Managed Super Fund by Martin Murden. Published by Major Street.
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or on the discussion forum) and/or request professional member(s) to contact you directly.
