Property Development & SMSF

[SMSFLending.com]

hi Bud

Property devlopment within an SMSF breaches so many rules its not funny.

You can't even purchase vacant land with an SMSF let alone progressively build on it. See a good accountant and they will set you straight.

Mike is 110% correct.

You cannot construct - improve - develop whilst the asset is a 'SMSF asset'.

If a block of land is already within the SMSF - too bad I am afraid.

The ATO Taxpayer alert 2008/05 states that:-

Trustees are also reminded that existing fund assets cannot be placed into a limited recourse borrowing without breaching the SIS regulatory requirements.

(see below link)

http://law.ato.gov.au/atolaw/view.ht...ion funds;

I have settled a couple of loans whereas the individuals purchase the land - construct then sell to the property to the property trustee (SMSF is the beneficial owner).

The contract of sale was drawn up between the individual and property trustee pre-construction so additional transfer duty payable only on land value.

Obviously many consideratons here, however if this is truly a long term strategy, then I believe it is a case of 'short term pain for long term gain'.

Cheers.

 

[SMSFLending.com]

Sorry I meant to say that if you were thinking of gearing the vacant land purchase as the banks will not lend under the relatively new SMSF borrowing rules as they see vacant land as unacceptable security.

As to a SMSF paying cash for vacant land there are some advisors that say it's OK and some that say it's not for a number of reasons including their take on it not meeting the sole purpose test.

Hi there!

I have received many enquiries whereas clients wish to purchase vacant land & construct.

There are a few options here:-

1. house/land package is acceptable;
2. have the land seller and builder agree to 'contract' as 1, i.e. house/land package (this rarely can be pulled off but have on a couple of instances);
3. purchase land and construct as individual, then sell completed property to Property Trustee. This will result in additional stamp duty on land value only providing the contract of sale between the member and Property Trustee is executed pre-construction. We also need to jump through a few hoops to convince the bank to aprove on this basis - an investment strategy will generally suffice.

Hope this helps.

Vic Bulfone
SMSFLending.com
Phone: 0449 054 793
Fax: 1300 847 161
Email: [email protected]
Web: www.smsflending.com
Mail: Po Box 7059, St Kilda Rd - Melbourne VIC 8004

 

[MikeF]

Hi there!

I have received many enquiries whereas clients wish to purchase vacant land & construct.

There are a few options here:-

1. house/land package is acceptable;
2. have the land seller and builder agree to 'contract' as 1, i.e. house/land package (this rarely can be pulled off but have on a couple of instances);
3. purchase land and construct as individual, then sell completed property to Property Trustee. This will result in additional stamp duty on land value only providing the contract of sale between the member and Property Trustee is executed pre-construction. We also need to jump through a few hoops to convince the bank to aprove on this basis - an investment strategy will generally suffice.

Hi

I'd be very careful with option#3 given that the purchase of residential property from a member of an SMSF would be considered a related pary transaction.

The SIS legislation generally prohibits an SMSF from acquiring an asset from a related party of the fund however, there are a number of specific exceptions, but purchasing residential property is not one of them.


To quote DBA Bulter Lawyers in their Nov 2008 newsletter (www.dbabutler.com.au) :

"Often, the timing of property development and when it is acquired by the SMSF will also be critical issues. For example, vacant land owned by members which is set to be developed in many cases will not be ‘Business Real Property’ (BRP) and cannot therefore be acquired by their SMSF. Exactly when the developed land becomes BRP is an important issue and trustees should seek expert advice beforehand.

 

[euro73]

vacant land and construction not acceptable for SMSF loans

My research and conversations with a variety of specialist providers has show that the small handful of lenders who offer SMSF loan products, will not lend against any form of vacant land or for construction. They will only lend against fully completed security, as best as I have been able to determine. This may not have been the case in the past, but I believe that it is the case today. Does anyone have any current information to the contrary?

 

[Pat]

Hi Euro73,

This is correct, one complete purchase. It's the SIS regulations that prevent it not the banks, they are working off their own legal advice.

 

[Marc Withnall]

SMSF Property Development

It is impossible to undertake property development within a SMSF.

It breaches the Sis Act in quite a few ways.

It can be solved and we have just recently solved this by setting up a registered managed investment scheme where participants can undertake property development and this has been designed exclusively for SMSF's

Our senior technical advisor Grant Abbott of SMSF Strategies has endorsed this product.

 

[MIW]

New SMSF ATO Draft Ruling for borrowings and property!

Just heard on Switzer "a draft ruling came into existance recently" (just a draft ruling, so it's not finalised) which permits greater flexibility into property. See the link below as it's very interesting read:

http://www.propertyobserver.com.au/...y-super-for-property-investment/2011101151890

OR ATO draft ruling directly:

http://law.ato.gov.au/pdf/pbr/smsfr2011-d001.pdf

They also have real examples so it is very useful. It may be soon possible for the building tradies to do their developments via Super (limited scale though).
We can add: pool, second storey, etc...but as long as the funds are not borrowed. So Super can borrow to purchase the property, but if enough cash is there then capital addition of a second story is allowed via cash funds of the Super.
Currently, yes, no capital improvements were allowed whether cash or borrowed but this may soon change.
Enjoy the read....