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Beware placing Investment Property into Self Managed Superannuation Funds

By: admin|

According to the latest ATO statistics for SMSFs, real property makes up 15% of the sector’s assets. This is twice the property weighting for regular super funds where only about 7% in invested into real property.

With residential property already making up one quarter of SMSF real property assets, the ATO said trustees should avoid transferring residential property unless it is income generating and effectively a business asset with proper arms length arrangements in place.

The only real estate you can transfer into your SMSF is business real property. You cannot transfer a residential investment into your SMSF. You also cannot transfer a property that has both business and non-business uses,” warned the ATO in its latest SMSF newsletter

Before you transfer a business real property into your SMSF, make sure you understand and comply with the super laws concerning the property transfer, both before and after the event. The real estate must be business real property both at the time and after it is transferred into the SMSF,” noted the ATO.

According to the ATO, transfers become complicated if the property transfer is done off-market as the onus is on the trustee to ensure the arrangement is on commercial terms.

“You must have a legally binding lease between your SMSF and your business. If you do not have a lease in place you will be breaching the super laws. The lease must be on arm’s length terms at market rent,” said the ATO.

For example, if the rent is below market it could be viewed that the SMSF is giving an advantage to the tenant at the expense of the fund members but if it above the market it could be viewed as being an attempt to circumvent the excess contributions tax, they explained.

Illustrating the ATO’s concern about property investments into SMSFs, they expressly cautioned that capital improvements should not be done.

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