The decision to purchase property through an SMSF requires careful consideration. This is perhaps why, in September 2024, the Australian Tax Office (ATO) reported that of the total estimated value of non-residential property assets held by the 621,809 SMSFs, only makes up about 13%.

One of the most common queries we get is “can our SMSF acquire a residential property from us personally”

Talk to an accountant or financial adviser about whether you can buy a residential property from a related party or rent one to your family and often the answer is a simple one; “you cannot acquire a residential property from a related party or lease it to a member or related party” But is this true in all cases?

An SMSF Specialist Advisor (SSA) will often dig deeper to explore the proposed strategy in more detail because it is not about the nature of the property, whether it is a residential property or a commercial office or industrial unit, but rather it is about the actual use of that property at the time of acquisition or when entering the lease.

We often see a residential property in suburbs or regional towns where a Doctor, Dentist, Accoutnant or other professional is using a residential property 100% for their business with no one living in the property. In this case the residential property is actually a Business Real Property and can be acquired from your fund.

Who is the property being acquired from and how is that property being used at the time of the purchase?

The exemption in s66 for business real property is tested at acquisition, so if it is currently not 100% Business Real Property as per s66(5) of the SIS Act, it cannot be acquired from a related party. But there is another chink in this rule, in that it does not have to be exactly 100% as in the case of a Farm where the use of the farmhouse for residential is incidental and therefore allowed. Another example would be the managers quarters in a Motel. So you can se that it pays to look deeper in to the exact details of a property’s use.

Tip on Scenario: Can an SMSF acquire a residential property and repurpose it as a business property so it can be let back to related party business?

– If the property will be used WHOLLY AND EXCLUSIVELY for the business at the time of acquisition, then YES. If not, then is the non-business use incidental? If not, then No

What if some portion of property is used for personal storage?

– Then the property is not used WHOLLY AND EXCLUSIVELY for business, so NO.

One solution maybe to change the nature of the residential property before purchase with the cooperation of the vendor and lease the premises properly from them. This might involve fitting out the rooms as offices/treatment rooms etc. Then when you go to acquire/move the property in to the SMSF it meets the Business Real Property definition. Please don’t try to bend rules, the ATO and your auditor will be looking to see that the changes are long term and with a serious intention for the property to remain as a business real property.

To help is is good to refer to the ATO definition of Business Real Property “Business real property generally means land and buildings used wholly and exclusively in a business.”

For more detailed information on what qualifies as Business Real Property see the ATO self-managed superannuation funds ruling SMSFR 2009/1: business real property for more information.

Other Tips and Traps

Minor Personal Use: In terms of using a small part of a property for personal use such as storage then refer specifically to paragraph 215 : “215. It is the Commissioner’s view that the de minimus principle of statutory interpretation will apply to the ‘wholly and exclusively’ threshold in the business real property definition. This principle will accommodate non-business use of the property that is relatively minor or trifling.”

Changing use of property while under an LRBA: you cannot change nature of the property while under an LRBA. It would be a breach of the rules by changing a residential property in to a commercial property while under a LRBA.

Warning before you jump into implementation of any strategy without checking your personal circumstances and the specifics of the property you are considering.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then, why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one-on-one consultation (after 1 July 2025 due to our waiting list). Just click the Schedule Now button up on the left to find the appointment options.

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Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

      

Tel: 02 9899 3693, Mobile: 0413 936 299

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