Self-Managed Superannuation Funds (SMSFs) have the flexibility to invest in a diverse range of properties, spanning residential, commercial, industrial, medical, and vacant land. A common query amongst SMSF property investors is whether they can sell their SMSF property assets to a related party (such as a family member or friend).
Keep reading as we unpack what SMSFs can and can’t do when it comes to transferring or selling property out of their fund.
Can my SMSF sell its investment property to a related party?
There is no explicit legislative prohibition against SMSFs selling property investments to fund members or related parties. However, the SMSF trustees are bound to uphold the arm’s length principle in such transactions. Selling the property on an arm’s length basis ensures that the sale is conducted fairly and commercially, as though there were no prior relationship between the parties. The sale price or consideration must accurately reflect the market value, established through an impartial property valuation conducted by a qualified independent valuer.
What SMSF trustees should consider before selling a property
SMSF trustees need to ensure that all of the decisions and actions taken in their self-managed super fund are compliant with the specific rules set out by the Australian Taxation Office (ATO) and superannuation law. Here are some of the considerations to be made before selling a property from a self-managed superannuation fund.
- – The trust deed and investment strategy may need to be examined to help determine that there are no transaction limitations.
- – SMSF trustees need to understand the potential tax implications of selling or transferring property, including capital gains tax.
- – Trustees should be mindful of stamp duty obligations, as they vary across different states.
- – An impartial and current valuation from a qualified property value may help to accurately determine the property’s market value.
Can trustees transfer property out of SMSF accounts?
The short answer to this question is yes but with limitations!
Transferring property is different from selling property. In terms of transferring a residential property or commercial property to a related party, things can get quite complex. As a general rule, transferring an asset out of an SMSF (including property) would be considered to be a fund member payment. SMSF members must have met eligibility requirements to begin receiving payments, and the asset would need to be in-specie transferred.
Depending on the member’s age, an in-specie lump sum benefit could have significant tax implications. It is also best to consult with an SMSF adviser, accountant or financial planner before executing transfers of property.
Purchasing commercial property and residential property through an SMSF
Just as there are regulations, rules and legislation to follow when you sell or transfer property out of an SMSF, there are also requirements for purchasing property through a self-managed super fund. If you’re looking to buy property within your SMSF, chances are that you may require a limited recourse borrowing arrangement (LRBA).
At SMSF Loan Experts, we help trustees to source the right lending solution for the SMSF property investment to help them on their way to building their retirement benefits.
Make sure you have all your bases covered — contact SMSF Loan Experts today.