Transferring a residential property into your SMSF that you or a related party of your SMSF already own is usually prohibited under superannuation law. However, an exemption applies if the property is classified as a business real property.
Let’s break this down into more detail.
Is your SMSF allowed to acquire your investment property?
When it comes to acquiring property from a fund member or a related party, very limited types of property can legally be acquired by an SMSF.
Residential investment properties, that you or a related party currently own, cannot typically be acquired by an SMSF. The property must be one that is used entirely for business purposes, in order to be referred to as business real property. So it must currently be used by 1 or more businesses, which can include your own business or a completely unrelated business.
There can be special rules that apply when working out if a property qualifies as business real property so speak to your adviser to see if your property qualifies.
Is the property considered an appropriate investment by the trustees of your SMSF?
Even though you may personally have a lot invested in it, as an SMSF trustee you need to carefully think about the property transfer. Consider the following questions:
- Does the property fit in with your SMSF’s investment strategy?
- Does your SMSF have the funds to pay for expenses related to the property?
- If your SMSF buys this property, will you be putting too much of the SMSF’s investment in property, rather than other assets to ensure you have a diversified portfolio?
- If your SMSF has to borrow money to buy the property, will the fund have enough money to make loan repayments?
How do I transfer property into my SMSF?
If you decide to transfer your property to your SMSF, you can do it as a personal contribution, by selling the property to the fund, or a mixture of both. But there are few things you need to consider.
First of all, you can usually only contribute up to $540,000 (in non-concessional contributions) into super every three years.*
So, if the market value of your property is worth more than $540,000 (gross value, not after deducting any mortgage owing), you can only transfer part of the value of the property as a contribution.
The balance of the property’s market value will have to be sold to your fund.
As an alternative, the property could be sold to your SMSF at market value. This means that you will be paid an amount that is equal to the purchase price from your SMSF which you can then use to repay any outstanding debt.
The SMSF may also be able to borrow against the property to finance the purchase of the property. But there are specific rules and restrictions that need to be followed.
What costs are involved with transferring a property into my SMSF?
- State transfer duty - Different states have different rules and fees which may apply.
- Capital gains tax - this applies if you acquired a property after 1985. You will need to pay capital gains tax in the same way as you would if you sold the property privately. Although, depending on your circumstances there could be ways to reduce or even eliminate having to pay this tax.
- Professional advice costs – A financial adviser will help you to transfer your property into your SMSF to ensure that all the legal requirements are met for you and any other trustees.
- Aside from the above, there may be some other costs associated with buying or selling a property that you may need to consider.
To learn more about buying property through your super, watch our video.
We recommend that you speak with a financial adviser to help you decide if buying property through your super fund is right for you.
* As part of the 2016 Federal Budget announcement, the Government is proposing to introduce a lifetime non-concessional (post tax) contributions cap of $500,000 to replace the current non-concessional contribution cap of $180,000 (and the associated $540,000 bring-forward rule). Should this proposal become law, it may further restrict your ability to transfer assets into your SMSF as a contribution.
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