22 Nov TAX Q&A: Tax implications of buying in SMSF
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Q: My son owns property in his personal name and other properties in the name of his family trust. He is considering selling these properties and I am interested in purchasing them from him. Can I purchase these properties through my SMSF (of which he is not a member)? If I do purchase these from him, he will not be residing in or using them in any way. Does that transaction meet the ‘arms length’ rule with regard to dealing with family members?
– Thank you, Col
A: When posing the question as to whether your SMSF can acquire property from your son, we need to clearly define each area involved Your SMSF cannot generally acquire assets from a related party unless they meet a handful of criteria. Before we look at this, we need to clarify what is a related party. The definition of who is a related party includes any relatives of the SMSF member and any trust that the member or their associates control. Based on this, your son would be considered a related party.
Secondly, for the property to be acquired from a related party it must be:
- of market value, and
- a listed security (ie share on the stock exchange), or
- business real property, meaning land and building used wholly and exclusively in a business, or
- of a value not exceeding 5% of the total market value of your SMSF’s assets, or
- an asset specifically excluded from being an in-house asset.
It is not clear if the property in question is residential or commercial; however, note that if it is residential, it will not meet the above criteria in order for the SMSF to be able to acquire the property. The issues regarding your son being a member, where he resides, or whether it is an arm’s length transaction, are unfortunately irrelevant.
“Your SMSF cannot generally acquire assets from a related party unless they meet a handful of criteria”
If the property is commercial in nature, then your SMSF could acquire the property as business real property, provided it is acquired at market value.
Need to know
• An SMSF can be used to acquire a commercial property as business real property.
• The property must be acquired at market value.
• A related party includes relatives of the SMSF member, and any trust controlled by the member or their associates.
David Shaw. CEO of WSC Group
Disclaimer: The advice contained in this article is for general information only and should not be taken as financial advice. Please make sure to speak to a qualified professional person before making any investment decision.
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