We receive many questions from readers about investing in property using Super monies. Questions range from “How can I use my super fund to borrow money to
invest in property?” to “Can my super fund buy a residential property for me to live in?”

For the convenience of readers we have compiled a list of some of the most popular Q&A on the topic of property. From the exhaustive number of questions we receive
we intend to answer all of them but certainly strive to cover most issues raised in broader articles.

1. Can my SMSF invest in property directly?
2. Can my SMSF buy my residential investment property
3. Can a SMSF buy overseas property?
4. Can a SMSF buy commercial property from a fund member?
5. Can we sell an investment property owned by a SMSF, to a fund member?
6. What are the tax implications when we sell an investment property owned by a SMSF?
7. How do we calculate the CGT payable by the SMSF when we sell a property, or other investment?

Q. Can my SMSF invest in property directly?

A self-managed SMSF super fund can invest in all types of property, including residential, commercial, industrial and listed and unlisted property trusts. There are some special rules peculiar to super that may affect how you use the property bought via a SMSF.

A residential property must not be rented to any member of the fund or any of the member’s family or businesses. This would be regarded as an in-house asset. Provided it was rented out at market rent that is fine.

Q. Can my SMSF buy my resident investment property?

Unfortunately there are only limited assets which a SMSF can acquire from a member in any manner, shares listed on a recognized stock exchange at the market value or business real property. Even though the property may be a really good investment for the fund because the member owned it first it cannot be transferred to the fund.

Q. Can my SMSF buy overseas property?

A SMSF can directly buy a property anywhere but certain countries are very litigious and how the fund acquires them can be quite tricky. Remembering the trustees must organize independent audits of the fund each year and this could increase the costs of audit for the following reasons:

The fund auditor would expect documentation evidence of ownership

The fund auditor would require documentation evidence of the value of the property as assets are to be recorded at the market value at the end of the financial year. The trustees of the SMSF would have to ensure that the trust deed allowed the trustees to acquire overseas property as well as acquiring property directly.

Otherwise there are no special rules for a SMSF acquiring residential or commercial property overseas. Certainly the residential property could not be rented or leased to a member or a relative of a member as it could cause a contravention.

Q. Can a SMSF buy commercial property from a fund member?

“ Business real property’, such as commercial or industrial property, or a shop, or even a farm, can be a legitimate SMSF investment in the same way that residential property can be. In terms of superannuation investments, the key difference is that, unlike residential property, a SMSF can buy business real property from fund members and fund members (or relatives of fund members) can use that asset if they choose to do so. Any lease in place must be at market rent and in line with the terms and conditions of a typical commercial lease.

Business real property can also be transferred as an in specie (non-cash) contribution, subject to contributions caps, and any small business retirement exemptions available (if applicable).

In some states stamp duty will be payable on such a transaction. You need to check with your State Revenue Office whether stamp duty is applicable.

Note that any property a SMSF purchases must be in the name of the SMSF (if corporate trustee), or the name of the individuals “as trustees of” the SMSF. If the relevant state laws don’t permit property be held by individuals “as trustees” then the SMSF must ensure a declaration of trust is made or other type of legal instrument is in place to recognize the SMSF’s interest in the property.

Q. Can we sell an investment property owned by a SMSF to a fund member?

Fund members/trustees can purchase assets owned by the SMSF (although the SMSF cannot purchase assets from members, except in limited circumstances).

According to the super rules, investments by SMSs must be made and maintained on a strict commercial basis. A fund trustee must ensure the asset valuation is robust, and the purchase or sale price of SMSF assets must reflect true market value.

The ATO states that you must obtain an independent valuation report to determine market value before purchasing the asset from the super fund. You must ensure there is a written contract in place and that the terms of the contract are on commercial basis.

Taxes will depend on the phase the superfund is in. If the SMSF is in the accumulation phase and it makes a profit on the sale it will be subject to pay CGT on that gain. If the SMSF is in pension phase, tax is not payable on fund earnings, including capital gains.

Q. What are the tax implications when we sell an investment property owned by a SMSF?

In order to answer this question let us assume the initial property was acquired by the SMSF for $200,000 more than twelve months ago. The SMSF sells the property to a third party for $300,000 resulting in a $100, 0000 gain.

If the SMSF is in the accumulation phase 2/3 of the gain is included in the assessable income of the fund and taxed at 15%. The discount of 1/3 of the gain effectively makes the rate on a capital gain of 10%.

However if the fund is in the pension phase at the time of the disposal there would be not tax on the capital gain.