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.
Business real property is defined in the super laws as:
- any freehold or leasehold interest in real property where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not) but does not include any interest held in the capacity of the beneficiary of a trust estate.
- the exception to this rule is an area of real property with a dwelling (for example, a house) where both the area and the dwelling are used predominantly for domestic or private purposes and the area is two hectares or larger.
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.
Moreover, 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.
If the rent is below market value:
- The lease could be viewed as a way of providing financial assistance to a related party of the fund - a trustee of an SMSF is prohibited from providing financial assistance to a related party of the fund.
If the rent is above market value:
- The lease could be viewed as a way to avoid the excess contributions tax. The excess rent may be counted as a super contribution and you may exceed the excess contributions cap which could lead to severe tax consequences.
Obtain independent advice from a qualified professional if you are unsure of the market rent rate.
Thinking of renovating?
If you transfer a property into your SMSF, it is important that your business does not carry out significant improvements to the property that becomes an asset of your SMSF. This may breach the super laws as the improvements may amount to an acquisition by the SMSF from a related party.
As an SMSF trustee, any investment you make for your SMSF must be consistent with your fund's investment strategy. As with any investment you need to consider issues associated with the risk and return, maintaining diversity in your SMSF assets, liquidity of your fund and how your fund can repay any loans.
Last Modified: Wednesday, 29 February 2012