Brown and Brown Conveyancing eNews ~ "Self Managed Super Fund (SMSF) and Property Investment"Garth Brown, B. Bus, Fellow of AICNSW, JP
You currently run a Self-Managed Superannuation Fund SMSF and want to invest in property, what is the best way to do this; what are the rules; and what will you need to include on the contract if you buy real estate?
According to the ATO – "a super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries)."
It is very important that the funds are protected and any potential real estate investment investigated carefully before entering into a contract as there has been a rise in reported scams related to SMSF and property investment especially with fake documents and websites set up to deceive investors.
Self Managed Super Fund (SMSF) Rules
You can only buy property through your SMSF if you comply with the Australian Taxation Office (ATO) rules. It's important to get the correct information by consulting a professional investment adviser with experience in SMSF to advise you of the regulations and guide you 'how to'.
SMSF and ASIC - 5 Guidelines*
1. The property must meet the 'sole purpose test' i.e. must solely provide retirement benefits to fund members.
2. The property must not be acquired from a related party of a fund member.
3. The property must not be lived in by a fund member or any fund members' related parties.
4. The property must not be rented by a fund member or any fund members' related parties.
5. The property you purchase with your SMSF could potentially be your business premises, allowing you to pay rent directly to your SMSF at the market rate.
* Reference ASIC (Australian Securities & Investments Commission) website:
SMSF and the Contract for Sale
There are very strict rules that apply to whose name goes on the contract. In NSW, Victoria, Tasmania, the ACT, South Australia and Queensland, the purchaser should be the name of the holding trustee only. There should not be any references to "as trustee for the SMSF". If you get this wrong, it may result in adverse stamp duty implications and other implications. It is up to you to do your due diligence and seek professional advice to ensure you get it right.
Some other important rules that the SMSF must follow:
• The SMSF must obtain a loan approval.
• The SMSF must pay the deposit on the property from the SMSF's bank account.
• The purchase contract should list fixtures and chattels that are to pass with the sale other than the land and the main structure.
• An off-the-plan purchase is when draft strata plans are used to sell home units not yet constructed. There can be problems with this type of investment and legal advice needs to be sought before an SMSF enters into this type of investment.
• If a member of the SMSF occupies the property the "in-house asset rule" would be breached. However, the SMSF can buy a property that the investor intends to live in after retirement only if the property is transferred from your super fund to yourself after you retire.
Brown and Brown Comments
Handling the conveyance of a property purchased by an SMSF
A company that owns a Trust or super fund has certain legal protection, if someone sues the company then - generally the company is set up so the company in the first place does not have any assets, so those suing cannot be compensated whereas those who are individually named on a Title linked to a Trust/SMSF can be sued by the assets these ones hold. At Brown and Brown we always take instructions from the Accountant in writing with these types of Conveyances.
It is also important for the people to have the Company or trust structures in place – prior to purchasing a property, if a name or company needs to be changed after exchange of Contracts the Purchaser could potentially be liable for double stamp duty (known as: a Transfer not in conformity with the Contract and not a related party to the Contract). It is very important this is all sorted out promptly with the Accountant before signing a contract and tendering a Deposit for the property.
Our next eNEWS August 2015 - “Joint Tenants or Tenants in Common”Garth Brown, B. Bus, Fellow of AICNSW, JP
Phone Garth Brown 1300 ASK CPC