Property Investment Rules

Stamp Duty

Stamp duty is payable when registering a Bare Trust. Below is a summary of the amount of stamp duty you’re likely to pay:

  • Victoria– Nil
  • New South Wales– $50
  • Queensland– Nil
  • Tasmania– $20
  • Australian Capital Territory– $200
  • South Australia– Nil
  • Western Australia– Nil
  • Northern Territory– $20

SMSF regulations when acquiring property

The ATO has strict rules on purchasing property in an SMSF. An SMSF cannot purchase residential property from a related party, even when using a unit trust. For more details, see the Taxpayer Alert TA 2012/7.

Trustees should be aware that some property promoters might try to use your Super to purchase property. Make sure that setting up  an SMSF is right for you. Good advice is available from www.moneysmart.gov.au

For a Q&A on property examples in an SMSF, follow this link to the ATO guidance document:

SMSFR2009/1 SMSFR2012/1

Please note our understanding is that if the SMSF acquires a property, it needs to notify the State Revenue Office within one month of acquiring the property. Rules may differ in each state. I have included Victoria and NSW State Revenue Office information pages for your reference:

Victoria NSW

For more details on property investment in an SMSF, please see this page.

 

  • Peter Gray

    I understand that “An SMSF cannot purchase residential property from a related party” but can it sell property to one? For example, if I set up an smsf and purchase a small home and rent it out as part of my investment strategy, could I sell it to a family member later (or even buy it myself upon my retirmenet)?

  • superannuationwarehouse

    Peter,
    Your understanding on this is correct. Properties in the SMSF can be sold to anyone at its market value.

    As this potential transaction is done with yourself or a related party, its important to illustrate it took place at:
    – a fair market price
    – an arms length basis
    So make sure you value the property and pay the SMSF as you would pay another party.
    Lastly, keep in mind the potential for stamp duty. As exception might be if there’s no change in beneficial ownership, then there’s most likely no stamp duty. A good idea might be to get a legal opinion on the possibility of stamp duty implications.

    Trust this helps.

  • Francis John Weir

    When we are talking about a SMSF purchasing property to rent out, and being mindful of the arm’s length rule, and the related party rule, can my SMSF rent property to my daughter?

    I would like to do this for a number of reasons, not the least of which is that I would rather rent to someone I know, as opposed to a stranger, but also that it would give her some independence (and free up a bedroom in my current residence).

    I would be able to save money on property manager/rental agent fees, and also would be renting it to her at current market value (gaining in excess of the 6% return advised by the ATO).

    Is this allowed? If not, then would it be allowed if I was to run the property through a property manager/rental agent, and then ask them to rent the property to her?

    • superannuationwarehouse

      Francis,

      Unfortunately, a residential property in the SMSF cannot be rented to a related party. The same rule apply, regardless if it is let out via a property agent or privately.

      The sole purpose for the investment in the SMSF is to provide a retirement benefit. Renting out a property to a related party is seen as assistance to this person and not the provision of your retirement benefit.

      The ATO rules in this regard is strict but is sensible to keep to the guidelines.

  • Francis John Weir

    Hi, I have another question about property, but I also want to extend my thanks for the prompt responses I have received so far, your responses are also clear and easily understandable.

    Am I able to purchase land and put a dwelling on it with the express purpose of renting it out to create income for my SMSF? None of the rules I am aware of would be breached, however I understand that if my fund was to borrow money then there is an issue of multiple assets, however I am not intending on borrowing money to achieve my intended outcome.

    Thanks again,

    Francis

    • superannuationwarehouse

      Francis,

      Without borrowing, all good and you can proceed. There is a fine line in that an SMSF can not run a business. So you can not be a property developer within the SMSF.
      Based on your scenario, seems all in order.
      Keep well,
      Hein

  • Graham

    can I claim depreciation agaiunst my USA property investment

  • Graham

    can I claim depreciation agaiunst my USA property investment

    • superannuationwarehouse

      Graham,

      You will claim the property expenses in the USA. The LLC will then pay tax in the USA after these expenses are deducted.

      You then bring the income to Australia and the SMSF will get a credit for taxes paid in the USA as there is a double tax agreement between the USA and Australia. We have a referral to an accountant in the USA and you will see his details on our USA page. You are welcome to contact Bobby directly. He is a CPA in the US and specialise in foreign property investors.

      Trust this helps

  • Aftab

    hi I am considering SMSF, but want to use it to buy land overseaswill i be able to do this?
    thanks,
    Aafi

    • Hein Preller

      Aftab,

      Your SMSF can purchase property for the purpose of your retirement benefit, both locally and overseas. Just make sure the SMSF has the legal right to ownership on the properties it owns.
      As some overseas countries do not recognise an SMSF or a Trust, you might have to set up a Custodian Trust for this purpose. This is an area where we can do it for you. More on this subject on our overseas property page:
      http://www.smsfwarehouse.com.au/smsf-investments/property/overseas-property/

      Trust this answers your question.

  • Aftab

    Also tell me what is the process if i open SMSF account to buy land in Australia how long wil it take in setting up, and what is the minimum super requirement (heard it should be above 10,000 AUD)

    • Hein Preller

      Aftab,

      There is no legal minimum to have in Super in order to open up an SMSF. However, $10k only in a Fund would not be enough to purchase property.
      It might be a good idea to maybe save a bit longer to ensure you can really afford it in the Fund.
      Trust this helps.

  • Susan

    Hi, if a buy a residential property through my smsf, following all the rules and processes for set up. Can I then rent out that property as a holiday rental property (as thats the best return for the proposed area) and can I manage that process myself? Also, can I charge the costs of the furniture setup to the smsf?

    • Hein Preller

      Susan, you can implement the strategy as noted. The SMSF can then also pay for the furniture, as this is part of the SMSF asset.
      Remember you can not rent the unit yourself as this is seen as deriving a current-day benefit from your SMSF retirement asset. Managed properly, you should be able to generate a good yield on this investment property.
      Good luck.

      • Jonelle Norman

        Hi, I am looking at the same scenario however will be borrowing to purchase (using smsf money as 33% deposit and borrowing the rest)… is the holiday letting still allowable in this instance and is the furniture cost set-up also allowed to be purchased with smsf cash? Thanks :)

        • superannuationwarehouse

          Jonelle,
          The rules have not changed regarding holiday letting, as long as its for the sole purpose of the SMSF, you can proceed.
          With furniture, it might be good to consider using a depreciation schedule, with the aim of maximising the tax depreciation on this part of the building. See here for guidance on depreciation schedules:
          https://www.smsfwarehouse.com.au/smsf-investments/property/depreciation/

          • Jonelle Norman

            Thank you so much :)

  • Pete

    Hi – I currently live and work overseas and expect to do so for 5+ years. Can I setup a SMSF and buy a property that i used to live in but now currently rent in Qld?

    thanks

  • Chloe Martyn

    can you please provide me with some information on time-share investments and purchasing through SMSF?

    • superannuationwarehouse

      Chloe,
      Time-share is usually bought to enjoy holidays on a regular basis. The objective would be to derive a current day benefit from this investment.
      An SMSF must invest in assets for the purpose of your long-term retirement benefit. Deriving a current-day benefit from an asset is not the objective from an SMSF investment.
      The conclusion is time-share investments would not be suitable for an SMSF.

  • Brett

    We are looking at purchasing an already established residence which is not owned by members of the fund, as part of our SMSF to generate rental income. When the investment loan is paid off are we then allowed to knock it down, subdivide and rebuild without breaching any of the applicable laws. Thanks

    • superannuationwarehouse

      Brett,
      You are correct with the statement above.
      If there is a loan, we set up a bare trust and do a detailed description of the property owned via the bare trust. While the loan and bare trust is in place, the nature of the property can’t be changed. This means if its a 3 bedroom, you can’t add a bedroom, make it double story or build a granny flat. Normal repairs and maintenance items can be purchased, though.
      When the loan is paid off, the property reverts to the SMSF and the bare trust falls away. You can then change the character of the property in the SMSF, as the constraints of the bare trust is gone.
      Keep well,
      Hein

  • Ronjamin

    hi there, I am thinking of purchasing an investment property through my SMSF and leasing it to a company I am a director of and then allowing it to be used by a staff member of that company. Does this breach the related parties rule?

    • superannuationwarehouse

      Ronjamin,
      If you control the company you refer to, this company would be a related party to yourself.
      Another item to consider is the sole purpose test, meaning the SMSF has to enter into the transaction for the purpose of your retirement benefit.
      Be mindful if it is a commercial property, the rules are more lenient. However, if this is a residential property – stay away as this is most likely a breach.

  • vickey Parchani

    Hi Hein,

    I have one question –

    Can you buy multiple properties under bare trust? I mean if I buy block of land now overseas
    under my name and use bare trust. After one year If I want to buy one more
    block of land overseas again it will be under my name and use bare trust
    so its possible?

    Thanks,
    Vickey

    • superannuationwarehouse

      Vickey,

      A bare trust can only hold one single acquirable asset. For guidance, see the tax guidance document noted above, the one named SMSFR2012/1 paragraph 12.

      When the SMSF wants to purchase a second overseas property, the easiest is for the SMSF to have legal title over the asset it owns. This is achieved by noting the SMSF name on title. Failing this, do a bare trust.

      Trust this answers your question.

      • vickey Parchani

        Thanks for your reply.

        So for second property we need to setup second bare trust (If legal title not owned by SMSF)??

        • superannuationwarehouse

          Correct

          • vickey Parchani

            ok, Thanks Hein.

  • Ray Ferretti

    Hi,

    My family trust has a rental property (mortgaged to ANZ) that is managed by a property manager and I would like to know if it is possible to invest my super (approx. $275k) into this property to pay down the loan and contribute to the repayments, Thanks Ray

    • superannuationwarehouse

      Ray,

      The answer is no.

      An SMSF can’t pay for the liabilities of another party. This would not serve the objective of an SMSF, which is to save for your retirement benefit. In this example, the SMSF pays a liability of another entity, which does not serve this sole purpose objective.

      Keep well,

  • Jessica

    What happens if you (60%)buy a property together with your super(40%)?

    Would you then be able to rent out 50% and say stay in 50% of the property?

  • Michael O’Hagan

    Is there an age limit regarding borrowing for a property investment? I am almost 55 and work full time.
    Also, can properties be rented short term, holiday pool, airbnb or do they have to be rented long term?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Michael,

      Thanks for posting. There’s no age limit in the borrowing rules. Just be mindful that the bank will issue a loan. Remember you can also do a related party loan if that makes the process easier for you:
      https://www.smsfwarehouse.com.au/smsf-investments/property/smsf-loans/related-party-loans/

      Properties can be rented out short or long term, your choice. Just remember you can rent it to yourself. There’s several ATO examples of whats not allowed. The classic example is you can’t purchase a holiday house and then use it over summer. It can’t be rented out to a related party.

      Keep well,

  • John Ferris

    Hi, can a SMSF / Bare Trust buy land, build a house on it and rent it out?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      John,

      When an SMSF buys a property with a loan (bank loan or a related party loan) a Bare Trust has to be set up in order to facilitate the loan. An SMSF is then limited in changing the nature of the asset while the Bare Trust is in place.

      Although an SMSF can do repairs and maintenance on a property if there’s a loan, the nature of the property can’t be changed. For example, you can’t convert a 3 bedroom house to a 4 bedroom or add a granny flat or do a subdivision. The nature of the property must be kept as-is while the Bare Trust is in place. More guidance on this in the 2 ATO rulings that is listed on this page.

      However, when the loan is paid off and the Bare Trust falls away, you can then change the nature of the property.

      Keep well,

  • neil coverdale

    hi can you build a house then sell it with a smsf

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Neil,

      You cant do this in an SMSF with loans. The reason is that the nature of an asset can’t be altered while a Bare Trust structure is in place.

      However, with no loans within the SMSF its possible.

      Keep well,

      • neil coverdale

        If i was a owner builder and built a kit home is that ok

        • https://www.smsfwarehouse.com.au Superannuation Warehouse

          Neil,

          Make sure the activities are undertaken for the sole purpose of providing for your retirement benefits.

          If your normal occupation is a builder, you may be able to pay yourself from the SMSF. However, if you are not normally involved in building activities and you are not a registered builder, you can’t pay yourself for building services within the SMSF.

          In addition to the notes above, its a good practice to note these activities in the investment strategy of the SMSF.

          Keep well,

  • Philip Wood

    I have an investment property in Auckland New Zealand. Can I set up a SMSF for the NZ property?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Philip,

      An SMSF is prohibited from purchasing assets from a related party unless its listed shares or commercial property.

      If you sell a commercial property to the SMSF, this can be done for cash or considered a non-concessional contribution to the Fund. Make sure the assets acquired is covered within the investment strategy of the Fund:
      https://www.smsfwarehouse.com.au/smsf-investments/strategy/

      To answer your question, its only allowable for an SMSF if the property you refer to is a commercial property.

  • Charles Kirby

    I own shares in a Multiple Occupancy (M.O.- aka Rural Land Sharing Community) in NSW. On the land area assigned to the shares, I have built house which I have never lived in but have always rented out for the last 10 years, with accounts to prove it. There is no debt on the shares or the building. Could I transfer the shares I own in the M.O. into a SMSF?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Charles,

      An SMSF is generally not allowed to purchase any assets from a related party. You are a related party to the SMSF.

      There is an exception for listed shares acquired and also for commercial property where an SMSF can purchase these from a related party.

      In the example you give, this would not satisfy the exception. So I am the bearer of bad news – your SMSF can’t purchase this asset from you.

  • Michael O’Hagan

    I thought that after retirement that I could somehow live temporarily in the property if I wanted to (if I paid it out and moved it out of SMSF) – is that correct?

    Reason being is I spoke to a person recently who is the financial advisor of a friend and he said it is very difficult if not impossible to live in a super-funded property.

    I am a bit confused regarding this – could you enlighten me please.

    Thanks from Michael

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Michael,

      It is true that while a property is owned by an SMSF it is a breach of regulations if
      you use it for personal purposes.

      However, a property can be sold from an SMSF to yourself, on the basis you use market rates and commercial terms. A property can be moved from an SMSF to yourself in a personal capacity while in accumulation phase, this can be done as a sale from the SMSF. When in pension, this can be withdrawal as a lump sum pension.

      For more guidance on conditions of release to make a lump sum payment see this link:
      https://www.smsfwarehouse.com.au/pensions-in-smsf/lump-sum/

      Hope this answers your question.

      • Frank Creegan

        Thanks for your reply Hein, so in simple terms
        1. We purchase a property using funds from our superannuation pot and through a newly formed SMSF.
        2. Five years or so down the track we decide to stop renting it out and move in to reside in that property permanently on retirement.
        3. We, as trustees of the SMSF and without anything owing on the property (mortgage free) sign it over to ourselves which then makes the property our own outside of a SMSF.
        4. Pay the transfer fee and pay stamp duty (if applicable)

        Have I understood this all correctly Hein? I read from another site that Stamp duty would be applicable at the market rate of the property at the time of transfer. Please give answers/thoughts

        • Hein Preller

          Frank,

          It is allowable for an SMSF to sell a property it owns to the Trustee of the Fund on the basis its conducted at market rates and commercial terms. Alternatively, if the Trustees meet a condition of release the property can be taken as a lump sum.

          My understanding is there may not be stamp duty implications if there’s no change in beneficial ownership as there is no change in the ultimate title of the property. However, there will be a transfer fee. This may be an area for legal advice.

          Hope this gives you the guidance needed.

  • Frank Creegan

    Buying a residential property within SMSF and planning to eventually retire and live in that property.
    What will be the cost implications when you retire into that property?

    • Hein Preller

      Frank

      When an SMSF wants to purchase a residential property, be mindful of the requirement not to purchase the asset from yourself or a related party and not to use it for personal purposes.

      It is allowable to sell a property owned by an SMSF to yourself in a personal capacity. Be mindful this has to be done at an arms length basis and on commercial terms.

      To transfer an asset to yourself as a lump sum, make sure both Trustees meet a conditions of release and are eligible to withdraw a lump sum:
      https://www.smsfwarehouse.com.au/pensions-in-smsf/conditions-of-release/

      My understanding is there may not be stamp duty implications if there’s no change in beneficial interest. However, there will be a transfer fee.

      Trust this answers your question

Contact Details


logo-grey

Peace Of Mind

We are Melbourne based with clients throughout Australia. Our SMSF administration service is mostly paperless. This enable us to charge a fair fee, resulting in a good value-proposition for you.

No Advice

Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.