Can an SMSF sell resi property via installment contract

Hi Forumites,
the Title says it all. Is there any reason why an SMSF cannot sell a resi property via an installment contract?

Thanks for any opinions, pointers and links,
EV
 
Hi Forumites,
the Title says it all. Is there any reason why an SMSF cannot sell a resi property via an installment contract?

Thanks for any opinions, pointers and links,
EV

Off the top of my head I can't think of any reason why not. As long as it is a non related party.
 
Thanks Terry. This raises a follow-on query, if I may?

Is there a compliant strategy whereby my SMSF and I (as an individual) can purchase a resi property using borrowed funds? ( and sell later, perhaps via installment contract)

From my reading, I understand there may be compliant methods via private company shares and/or unit trusts under specific ownership limits that prevent it from being an LRBA arrangement.
 
Thanks Terry. This raises a follow-on query, if I may?

Is there a compliant strategy whereby my SMSF and I (as an individual) can purchase a resi property using borrowed funds? ( and sell later, perhaps via installment contract)

From my reading, I understand there may be compliant methods via private company shares and/or unit trusts under specific ownership limits that prevent it from being an LRBA arrangement.

Possibly.

eg. A unit trust with units owned separately by yourself and the SMSF. You could borrow using your units as security.

or

Yourself and the SMSF as tenants in common with you using funds borrowed from a LOC secured on another property.
 
Selling via an instalment contract would generally mean you are going to want a charge against the asset which would be a breach of the sis act. Sis regulation 13.14 prevents smsfs from giving a charge over assets.

if you didnt have a charge against the asset you would breach the sole purpose test.
 
Scott

provided the smsf trustee has obtained an independent valuation and the property is sold at commercial market rates then an smsf can sell reesidential property to a member. An smsf cant purchase residential property from a member.
 
Whats wrong with an SMSF selling a property to a member?

Generally nothing, but with an installment contract this may be a bit more tricky as the smsf would be providing a benefit to a member. What if the member doesn't make the final repayment for example. title would remain with the smsf so the member would have made all of those payments to the SMSF over say 25 years with the SMSF obtaining a benefit.

This is a tricky one. Could be possible but care is needed.
 
Yes, With Mike here. The valuation must be by a property valuer not a real estate agent opinion either. BUT....I have an issue with a sale by instalments to a related party however for a slightly different reason. I'm not sure if it complies. The valuation may be in respect of a specific period of time for one instalment and be non-compliant with another especially if the value changes....Its effectively a loan to a member for the second and further instalments !! Triggered by the new restrictive related party disposal rules. A sale to a unrelated party doesnt have this onerous valuation timing issue and appears to comply as a sale by instalment.

The ATO obviously havent been asked yet if such an arrangement still complies. In the absence of a private ruling or some other form of binding ruling then it may be fraught with danger to proceed. I also question if the "same asset" replaces the former ?

This looks like a question for the Commissioner. However, I can imagine the ATO would throw the question to the NTLG Super Technical SubCommittee who will do a full "Yes Minister" job in deciding nothing. Ask the ATO for a SMSF Ruling and they love saying "no"...Timing may depend on if a present Asst Commr gets his super industry job. A ruling might be more favourably considered from a few firms I can think of ;-)

Scott

provided the smsf trustee has obtained an independent valuation and the property is sold at commercial market rates then an smsf can sell reesidential property to a member. An smsf cant purchase residential property from a member.
 
Ok, this is more intriguing than I expected. Thanks for the brainpower on this guys.

Let me ask the question a different way;
Can any asset owned by an SMSF be sold to an unrelated party via any type of vendor finance arrangement?

Can someone help me understand the term "charge" as mentioned by coastymike?
 
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Ok, this is more intriguing than I expected. Thanks for the brainpower on this guys.

Let me ask the question a different way;
Can any asset owned by an SMSF be sold to an unrelated party via any type of vendor finance arrangement?

Can someone help me understand the term "charge" as mentioned by coastymike?

I think it may be possible depending on how it is structured and the circumstances. Seek specific legal advice.

A charge is some sort of encumbrance on title such as a mortgage or a pps act charge like the old fixed and floating charges.
 
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