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Sep 13, 2021

Sale of Members Assets to SMSF

in SMSF Technical Forum

My client want to setup a new SMSF.

One of the members want to sell his residential property to the newly created SMSF.

(Two different families, Husband and wife _ 4 members want to form the new SMSF)

I believe this is possible.

What are the important rules / issues that I should consider?

2 answers0 replies

Comments (2)

Unknown member

Sep 15, 2021

Thank you

THE AUDITORS INSTITUTE

Sep 13, 2021

Hi Noble

Normally a SMSF cannot purchase residential property from a member.

Under section 66 of SIS a SMSF cannot acquire an asset from a member unless it is:

1) listed shares, or

2) business real property (BRP), or

3) units in an ungeared unit trust (& rules followed).

Acquire means to pay for the asset or to receive it in-specie.

A residential property would not normally be considered to be BRP so a SMSF could not normally acquire it from a member or a related party. As an example residential property could be considered to be BRP if it was owned by a person that was in business as a property developer.

A good reference is SMSFR 2009/1 SMSFs: business real property for the purposes of SIS.

Example 14 states:

"Example 14: Residential property held in a property investment business

279. Mr Wood owns 20 residential units that are leased to long-term residents. Mr Wood manages and maintains the flats on a full time basis living on the income generated from the leases. The units are not mortgaged.

280. Mr Wood would like his SMSF to acquire some of the units rather than sell the units to a non-related party.

281. The scale of the operation together with the elements of repetition and purpose indicate that Mr Wood is carrying on a property investment business.

282. Even though the tenants use the properties for their own private or domestic purposes, this use remains incidental and relevant to Mr Wood's property investment business. Consequently, Mr Wood's interest in the property on which the units are built is business real property. Provided the acquisition takes place at market value, the units may be acquired by the SMSF without contravening the related party asset acquisition rule in section 66. "

Thanks

SMSF AAA