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Campbell McCart

Apr 20, 2023

in SMSF Technical Forum

QUESTION 1

Can an smsf sell a commercial property to a Related Trust on the basis that is has obtained independent expert third party valuation? For purpose of this exercise Stamp Duty is not a factor / not applicable for consideration.

EXAMPLE 1

Brown Super Fund owns a commercial property, two members of the fund are Jim and Sue Brown. The smsf gets an independent third-party property valuation to provide a value for the warehouse of $2,600,000. This value is also supported by two local restate agents who value the property between $2,5000,000 and $2,750,000. Jim and Sue have a Family Trust called Brown Family Trust with a Corporate Trustee called Bottle Pty Ltd. Jim and Sue are the Primary Beneficiaries of the trust. Both Jim and Sue are 100% in Pension phase and consider the sale will not be subject to CGT. Bottle Pty Ltd ATF Brown Family Trust signs standard real estate contract to purchase the property for $2,600,000. My view is that there is no problem in this arrangement. For following reasons:

A smsf can buy commercial property from a related party.
A smsf can sell a residential property to a related party in line with arm's length independent valuation.
I see what is being proposed, is just the reversal of 1 above.
No CGT as fund 100% in pension phase.

Please confirm and what sections of SS Act cover this. Is there anything else we should be aware of? They trustees have considered the issue of stamp duty.

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Apr 21, 2023

Hi Campbell

Yes a SMSF can sell a property to a related party. It has to be done on an arm's length basis so yes an independent valuer should provide a valuation.

In your example yes the SMSF can sell the property to a related party. It has been done on an arm's length basis as an independent valuer has provided a valuation. The property could be a commercial or a residential property.

SIS legislation section 66 puts restrictions on SMSF's acquiring assets from a member or from related parties. SIS (other than re collectables) does not put restrictions on SMSF's being able to sell assets to members or related party. Any sale (or transfer) of a SMSF asset has to be done on an arm's length / commercial basis as per section 109 of SIS.

Section 66 of SIS does allow a SMSF to purchase / acquire "business real property" from a member / related party as long as it done at market value. Yes a commercial property would normally meet the requirements of being "business real property".

Yes the trustees have to consider stamp duty implications and they differ based on the state the property is in.

Yes if a SMSF is 100% in retirement phase pension mode then yes any capital gain on the sale of the property would be tax free.

Not an audit issue to consider but the trustees should also consider if rather than selling the property to the member / related party can they / should they do an in-specie transfer of the property to a member as a lump sum payment / pension commutation. Again tax and stamp duty implications would need to be considered.

Thanks

SMSF AAA