Compliance / Mar 20, 2022

Living in an SMSF property post-review

Duc Hong
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Many clients look for help to purchase an investment property via an SMSF. Years later, some of these clients may wish to live in their SMSF’s investment property – is this possible?  

In-Specie Transfer Once the member has met a condition of release, members may be able to live in their SMSF investment property. To achieve this, the property must be moved out of the fund. This is done in the form of an in-specie transfer to the member. As this process involves the change of property title, additional costs such as stamp duty may apply. We recommend you seek advice in relation to the stamp duty and other costs involved in the transfer.  

Short term considerations Before making the in-specie transfer, the trustee should check that their SMSF’s trust deed allows this. If the deed does not, the member can arrange to have it updated. The member should also take into consideration how much stamp duty may be applicable, if any, as this can vary depending on the state and the market value of that property.  

Proper Planning
Members can enjoy the concessional tax benefits on rental income earned in their SMSF to assist them build up their super. When members retire, they may have the option of transferring the property into their personal names tax-free.   It’s important that the dominant purpose for purchasing the investment property, is to generate retirement benefits for members. If the ATO believes that trustees have breached the “sole purpose test” there may be crippling penalties.  

Topping up the super balance Once a member, or members, are ready to transfer the investment property out of the SMSF to live in, they may be able to use the downsizer contribution or bring-forward contributions, to assist with paying any outstanding loans on the property, or injecting liquidity into the SMSF to invest in other assets.  

Conclusion As outlined above, it is possible for clients to live in a property that was held in their SMSF but adhering to the rules and regulations can be difficult. It can also be very costly if the correct process is not followed. So please, seek legal advice before proceeding.
If you have any other questions about managing your client accounts, please speak with Mark Phillips or Alex Polorotoff on 1300 364 597, via email at mark.phillips@interprac.com.au or alex.polorotoff@smsfengine.com.au.

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