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Adam B.
Adam B.
Rosebery, NSW
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I was reading in the Financial Review that I could potentially rent out my SMSF investment property to a family member as long as it is done at a commercial rate. I much prefer to rent to someone I know. Is this true?

3 months ago

Responses

Hi Adam,
I don’t believe that is true. A residential property must be rented at arms length and cannot be rented to a related party.
A commercial premises can be rented by the owner
Best you speak with an SMSF expert before going too far down the track
Cheers Scott

NOOOOOOO!!!!

You can not rent your investment property, owned by your SMSF, to a family member.

If you have a commercial property (factory, shop etc.) then you can but if it's residential property it's a big NO.

All the best
James

Well........."technically" you can..........but you will be opening a Pandora's Box of poo and tipping it all on your own head.

https://smsmagazine.com.au/columns/avoiding-in-house-asset-complications/

if you really really want to know, start with this article......then get yourself a copy of the SIS Act 1993, and become VERY familiar with Part 8 of the Act......because Part 8 is the section of the SIS Act that will explain that after you rent out your SMSF home to a family member (on commercial terms), the fund will:

a) lose its complying super fund status and pay tax at 47%
AND
b) be forced to sell the house

I am being VERY tongue in cheek here Adam. if you follow the letter of the law, you CAN do the thing mentioned in the Fin Review, but the adverse consequences will want you to find the journalist who wrote that article and cut off his toes with a set of bolt-cutters.

Super legislation is crazy complicated, so you need to have confidence that you are across it, OR have an advisor who is......and trust me there are PLENTY who arent!!! I have seen some dead set clangers when auditing SMSF........

So talk to your advisor about this......and question them.....their job is to explain it to you in a manner that you can understand. If all you get is gibberish then it means that your adviser doesnt understand it well enough to explain it to you, or they DO understand it, but are incapable of communicating......either way you are up the creek in a barbed wire canoe with no paddle........

good luck,

BC

Adam this is a very topical question because right now there is a case in the courts over a very similar issue. This involves a SMSF buying student accommodation and several years later a daughter rents a room at commercial rates. On first review by the courts this was considered not to be allowed under the sole purpose test. But on appeal this was over turned as at the time the decision to invest was made, the SMSF had no intention to let a room to the daughter. So a very interesting interpretation of the law, but, I do not know if the ATO are going to appeal the appeal and take it to a higher court yet. So there may be court precedent as to what constitutes the sole purpose test, but we will have to wait and see. Fundementally in my mind there is no difference renting a commercial property from your smsf (which is allowed) and renting a residential property from your smsf (which may now be allowed subject to the finalisation of the above case)

HI again guys.......great case example Wayne!!!!!.........I would be very surprised if the ATO doesnt appeal this decision.....the last thing the ATO will want to see is a fleet of SMSF renting out houses to Aunty Ethel....
....and even if they appeal and lose the case, this wont alter the ATO's interpretation of the law.....because that individual case is VERY specific in its details......
My point here is that you can have all the fine details and case law in the world to back you up, and the ATO will make your life a misery anyway if they think you are having a lend of them........sometimes it has more to do with minimising the risk of an ATO audit than it has to do with the correct application of the legislation
cheers
BC

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