Avoid Making Costly Mistakes When Buying Property with your Superannuation Fund

Published 13 March 2020

By Rizwan Inayat.

According to the ATO over four years to 30th June 2012, the self managed super sector grew by 33% or in dollar terms $109 billion. It has become the fastest growing superannution sector and with the increasing popularity of buying investment property with your superannuation fund, there has been increased concern by the ATO over the number of arrangements many super funds trustees are getting wrong.

Their recent tax payer alert (TA 2012/7) is addressed to SMSF trustees which specifically focuses on the way limited recourse borrowing arrangements are being used to invest in direct property.

In a nutshell, the ATO has concerns over those arrangements that do NOT pass the test or are non complying in terms of the superannuation law.

Problems With Limited Recourse Borrowing Arrangements (LRBA) and Self Managed Superannuation Property investments.

The ATO's main concerns are based on a number of key findings:

- Incorrect title of the property when borrowing where it is held in the individuals’ name and not in the name of the trustee of the bare trust or holding trust. This is a very common mistake being made with property purchases, as the title of the property is is meant to be held by the trustee of the holding trust, on behalf of the SMSF.  This simply means that many SMSF's are not completing  property contracts in the correct name.

- The non existence of a trustee of the holding trust and the holding trust NOT being established at the time the property contract  is signed to acquire the property asset;

- SMSF members off-selling their residential property to their SMSF trustee and breaching the inhouse asset rules - this is a BIG no no;

- An SMSF purchasing a block of vacant land. Where the SMSF intends to borrow  and build a house on the block of land with the land being transferred to the holding trust before the house is even built. This is an easy mistake many new SMSF trustees are making.

Given the complexity of the superannnuation laws and the SMSF LRBA's, it makes sense to have your situation reviewed or managed by a tax professional. Too many mistakes and you could end up with a lot less in superannuation when you retire.

If you are using self managed super fund with limited recourse borrowing make sure you check out the tax payer alert for further information here.

Avoid making costly mistakes when buying property with your superannuation fundread about more comprehensive SMSF guides here:

Rizwan Inayat

Rizwan Inayat is a senior partner at ITrust Tax and Accounting with over 10 years experience in tax and accounting advice. He is passionate about helping people get great tax results and succeed financially. If you would like to know more about setting up a self managed superannuation fund or have a general enquiry contact him here.


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