In this edition of It Depends, senior associate Keeghan Silcock explains when property owned personally or by a related entity may be transferred to a self-managed super fund.
While SMSFs are generally prohibited from acquiring assets from members or related parties, an exception may apply to business real property that is wholly and exclusively used in a business.
Market value, available fund cash, contribution limits, borrowing restrictions, tax and duty all need to be considered. The outcome will depend on the property and the proposed transaction structure.
Video transcript
Hi, my name’s Keeghan Silcock, and today I’ll be doing another It Depends session. I’ll be talking about whether you can sell a property that you or a related entity own to your SMSF.
Can I sell property to my SMSF?
So, the answer is, it depends. There is a general prohibition against a self managed superfund buying an asset from a member, relative or a related party. However, one of the biggest exceptions to that prohibition is business real property.
So, can SMSF can buy real property from a member if it is wholly and exclusively used in one or more businesses. So, practically what we’re talking about there is commercial property. It’s very rare for a residential investment property to satisfy that business real property test.
So, if we can tick that first requirement, we’ve got a commercial property sitting outside your SMSF that you want to put in to the fund. There are a number of other steps that we have to kind of satisfy as well.
Firstly, the big one is that there will obviously need to be market value consideration paid by the SMSF to you personally. So, there needs to be funds available in the SMSF to make that payment.
If we don’t have sufficient funds, we should be looking at potential other options, such as whether we can make contributions into the fund. And also potentially whether we can use the transfer of the property itself as an in specie contribution to the fund, either eliminating or reducing the amount of cash that then needs to be paid out of the super fund for the property.
Another potential option may be borrowing, but again, in SMSF world we’ve got a lot of restrictions and really the only way that an SMSF could borrow to buy the property would be the use of a limited recourse borrowing arrangement, or potentially an unrelated unit trust structure.
So, that would really only be appropriate where we’ve got another completely unrelated investor that we want to help buy that property as well.
So, they’re some of the big kind of issues we need to think about, to see whether it would be possible to transfer that property into SMSF. And of course, we need to be looking at tax and duty as well.
For duty in New South Wales and Victoria, there are some specific concessions which can apply for transferring properties into an SMSF.
In Queensland unfortunately, we don’t have any specific duty concessions, but trust cloning may be an option where the property is sitting in an existing trust and we want to get it into an SMSF.
So, if you have a particular property that you’re looking to get into an SMSF, or you’d like to talk about that process or any questions you have generally, please feel free to contact a member of our team.
