Can you live in SMSF residential property held by your Fund?” No not directly, but follow the rules at retirement, and it may be possible.
As you retire, retirement planning opens up opportunities for living and the next stage for your SMSF, your lifestyle and your needs.
An SMSF is established for the sole purpose of meeting your retirement objectives. And this is the overal objective of holding any assets in the Fund!
Retirement planning involves planning and managing your assets into the senior years of your life. Opportunities arise as clients look at the strategies such as the downsized option for superannuation contributions along with other strategies. At this stage in life, you may wonder if you can live in the SMSF residential property after retirement. The property may be a residential holiday letting or an apartment.
Unfortunately, there is a misconception that you can move into the SMSF property as soon as you retire, regardless of whether the property is still in the SMSF. This is a big misconception as, at present, the Trustee of the Fund still owns the property, and it still forms part of your existing investment strategy.
Selling the residential property to a member prior to retirement is not allowable as it may breach the non-arms-length rules.
To live in SMSF residential property, it is necessary to transfer an asset to a member upon retirement
The Trustee, upon retirement, may provide benefits to the retiring member by utilising the major asset directly to satisfy the benefit by an in-specie transfer.
Member payments are the distribution of the member’s superannuation entitlement within the SMSF. The benefit is calculated based on the proportion of net assets at market value. Accessing superannuation entitlements is subject to conditions of release.
These conditions include reaching age 65, or, retirement, or medical incapacity. Not meeting one of these conditions means members cannot access their superannuation entitlements from the SMSF
Transferring the residential property from an SMSF as a Member Payment at Retirement.
As the Trustee of the SMSF, which is you, can determine that it will pay a lump sum. Your decision will be to sell the property or assets or undertake an in-specie transfer to the member.
Another term used for residential property transfer from an SMSF is known as an “in-specie transfer.”
In this case, the market value of the asset transferred within the SMSF decreases the member’s balance drops by the same value to reduce the amount held by the Fund on the member’s behalf.
How do you ensure the property transfer is done right?
A property that can be held in a superannuation fund can be transferred out of the Fund to satisfy as a member payment providing it meets the SIS conditions.
First Step. the Trust Deed. Check that the SMSF Deed will determine whether if the Deed permits in-specie transfers of assets. The Deed also outlines any specific processes that the Trustee must follow.
The asset being transferred must be valued at its market value. Where it was part of a borrowing arrangement check that it has been fully discharged.
The member also must have sufficient member entitlements in the Fund to cover the value of the asset being transferred. Complicated transfers where the value is greater than the value of the benefit need a professional plan. Reach out, and we can help work through your strategy.
Tax and Duty Considerations
We suggest you check with your solicitor in relation to the legal matters. Your solicitor will ensure any property transfer is done correctly. As accountants, we can advise you if there will be any income tax implications behind your strategy. There may be stamp duty savings but the solicitor can help you here. Therefore to be legally binding the asset change of ownership needs to be properly documented.
Plan and do it right.
Seek advice surrounding your requirements to avoid any costly mistakes.
This article is general and should not be construed as personal advice. You should consult a qualified professional for advice specific to your circumstances.