Masterclass SMSF – Acquiring assets from related parties – a possible solution for property?

Masterclass SMSF – Acquiring assets from related parties – a possible solution for property?

SMSF – Acquiring assets from related parties – a possible solution for property?

Property – when the SMSF hasn’t enough to borrow itself – acquiring assets from related parties may be possible using a non-geared related unit trust or company.

From August 1999, the only other alternative for your SMSF to invest in a related party unit trust or company (holding greater than the 5% in-house asset limit) is via the non-geared exemption under SIS regulation 13.22B and 13.22C. A SMSF investment using these provisions is not considered an in-house asset.

One of the benefits of the non-geared unit trust or company holding business real property, is it can provide flexibility of ownership between your SMSF and other related parties  compared to direct ownership via tenants in common. Of course, you will need to consider the potential impact capital gains and stamp duty may have when transferring units or shares between parties.

However, these non-geared unit trusts and companies are significantly limited to what assets they can hold or activities they can undertake. The restrictions include not being able to:

  • Borrow or allow a charge over any assets;
  • Run a business;
  • Hold an interest in another entity (e.g. can’t hold shares in company);
  • Loan money to another entity;
  • Lease an asset to a related party, except if the asset is business real property;
  • Acquire an asset from a related party of the SMSF after 11 August 1999 except if business real property;
  • Acquire an asset that has previously been owned by a related party since the later of 11 August 1999, and three years before the SMSF first invests in the non-geared entity.

Most importantly, if the non-geared unit trust or company breaches any one of the above provisions, then the exemptions under SIS regulation 13.22B and 13.22C ceases immediately; resulting in your SMSF’s investment in the non-geared unit trust or company being classified an in-house asset. This is regardless if the breach is rectified during the current or future financial years.

For a good explanation, see The SMSF Coach article and consult your advisor, or ask us to refer one for you – best to seek advice BEFORE a costly mistake is made!

Want to know the options and how property works in SMSF? See our FREE slides SMSF & Property Overview

If you have any questions, why not give us a call – it’s FREE! No obligation.

0407 361 596, Paul

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About SuperBenefitnews

Self-Managed Superannuation Service Providers in Australia. SuperBenefit provides a wholistic SMSF assistance, education and administration service continuum - 1. “assistance” is help of whatsoever nature where our overall SMSF experience and knowledge enables us to provide assistance/help without any legal (or “license”) limitations. 2. “education” involves providing knowledge through teaching, coaching and mentoring about all matters SMSF, including (but not limited to) investment issues such as equities and property, 3. “administration” encompasses all admin aspects of legally required SMSF trustee and member record keeping including (but not limited to) audit and ATO matters. In keeping with our key point that SuperBenefit does not provide Financial Advice, where issues arise from 1, 2, and/or 3 above Indicate a need for a legally authorized provider (such as a Financial Adviser) and the client does not have their own service provider, the client can utilize SuperBenefit’s ‘Connect Assist’ … SuperBenefit, in itself, does not provide Financial Advice, but it does provide the wherewithal for great SMSF service. WE do not provide Financial Advice or any other service that requires a legally authorized provider. However, where such advice or service is required we have our ‘Connect Assist’, a SuperBenefit resource we use to connect clients to a Licensed Advisor or other legally authorised service provider. Call us 0407 361 596, no obligation FREE Connection call to see how we can help you!
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