Can your SMSF sell property assets to a related party?

Self-managed superannuation funds (SMSFs) over the past few years have become the retirement vehicle of choice due to the flexibility that trustees have over investments and effective low tax rates. SMSFs are also an effective tool for estate planning, as it allows you to control how your benefits are passed or used upon death or retirement.

Residential investment

SMSFs can purchase almost all types of properties from residential, commercial, factories, medical suites to vacant land and so forth. While it is acceptable for SMSFs to buy commercial properties from a related party, it is against the SISA for a fund member to sell or transfer in specie a residential property to the SMSF.

Conversely, there is no specific rule prohibiting a SMSF to sell a residential property investment to a fund member or a related party. However, the trustees of the SMSF must maintain the transaction on an arm’s length basis. This means that the sale transactions must be conducted on a commercial basis as if there was no relationship between the parties. The sale price or consideration therefore, should be at market value determined by an independent property valuation.

The following SMSF checklist should be considered as guidance when selling properties to related parties:

  • Check trust deed and investment strategy to ensure there is no limitation of such transactions
  • Consider potential tax implications of the sale such as capital gains and income tax
  • Consider stamp duty obligation as it defers for each state
  • Obtain an up-to-date independent property valuation from a qualified valuer to determine the market value of the property.

RELIANCE AUDITING SERVICES

Reliance Auditing Services is a specialist independent auditing services firm providing quality audits to SMSFs, companies, not-for-profits and AFS licensees all over Australia. Reliance Auditing places a huge emphasis on educating our clients to ensure they fulfil their reporting obligations.Call: 1300 291 060 or email info@relianceauditing.com.au.

DISCLAIMER: This information is an interpretation of rules, regulations and standards. It should not be considered as general or specific advice and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation.