SMSF Property Rules

Trustees can invest in properties with their SMSF’s. However, there are stringent rules about what an SMSF can do.

Purchasing properties from a related party

An SMSF is generally not allowed to buy residential properties from related parties. The only assets that an SMSF can buy from related parties are commercial properties and listed shares. For some examples on property investment, follow this link to the ATO guidance document:

SMSF 2012/1

SMSF 2009/1

When purchasing a commercial property from a related party, Trustees need to make sure that the transfer took place on an arm’s length basis and on commercial terms. The property should be valued at market value by a professional valuer or the Trustees of the Fund. If the Trustees would like to value the property by themselves, the market value should be determined based on objective and supportable data. The ATO has provided some guidance on who can undertake an asset valuation. To access the ATO’s guidance, please click on the button below:

 

Disposing properties to a related party

On the contrary to the strict rules around purchasing a property from a related party, the SIS Act and Regulations do not prohibit the SMSF from selling a property to a related party.

The Super Fund is also not expected to value the property when selling it to a related party, although the transfer still has to occur on an arm’s length basis. When disposing the property to an unrelated party, property valuation is also not required. To access the ATO’s guidance on asset valuation in an SMSF, please click on the button below:

Tenants in common

The SMSF can co-own a property with a related party by entering into a tenants in common arrangement.

In this case, the SMSF owns part of the property with a related party, such as the Members of the Fund. Any income or expenses incurred by the property will be apportioned accordingly to the percentage of the property owned. A statement of income and expenditure is required each year to work out the net income to be distributed to each part owner of the property.

It is an ATO requirement for the Fund to have a legal enforceable right to the assets that it owns. If the property is purchased through a tenants in common arrangement, it is important that both the names of the related party as well as the SMSF are on the contract of sale. For more information on asset ownership, please click on the button below:

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