Purchase of residential property through SMSF -advice

[The Porky]

Hi

I have been reading material on the forum posted in regard to the purchasing residential property through a SMSF.

However I have a couple of specific questions that I was hoping to obtain anwers for.

I appreciate that the laws surrounding the purchase of a property through a SMSF is limited by the provisions that the purchase must be from a "unrelated party".

However is anyone able to provide me with a definition of an unrelated party as I havent been able to locate one ?

Example would a SMSF purchase be allowed from for example:

1. uncle or aunty

2. grandmother or grandfather

3. family friend

Also if a property which was to be purchased through the SMSF wouldnt require any borrowings from a bank (ie. the SMSF would have enough funds to purchase the property outright)

What structure if any would be required or would it be as simple as having the title in the name of the SMSF.

Look forward to any advice that anyone has to offer.

Cheers

 

[Terry_w]

It may be better to look for the definition of "related party"
s10 SIS Act
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s10.html

Note that it includes an 'associate' of the member
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s10.html#associate

This leads you to s12
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s12.html

Which in turn tells you it is to be determined in the same way as that question would be determined under the in the Corporations Act

 

[The Porky]

Cheers Terry thanks for the links.

I may have to consult someone that understands the acts from a legal perspective.

As I have being asked if I would like to purchase a property which is part of my deceased step grandfather's estate.

To be honest I am no legal person and still cannot ascertain from the information that you sent me if he would be considered a "unrelated party" therefore I could purchase.

Cheers

 

[Terry_w]

Cheers Terry thanks for the links.

I may have to consult someone that understands the acts from a legal perspective.

As I have being asked if I would like to purchase a property which is part of my deceased step grandfather's estate.

To be honest I am no legal person and still cannot ascertain from the information that you sent me if he would be considered a "unrelated party" therefore I could purchase.

Cheers

Technically you would be acquiring the property from the executor - so you will need to determine whether this person(s) fall within the definition.

 

[Paul@PFI]

Executor Related Party

The ATO at a recent National tax Agent Liason Group - Superannuation (NTLG Super) Meeting considered a question regarding a executor who is a relative of a smsf member (deceased)...Can a property be sold by the executor to a related party. The initial tax office view although not binding or a formal "ruling: its indicative of the concern - it is PROHIBITED.

I'm sure a number of lawyers might question that view. What happens if there are multiple executors and one isnt a related party ? Many other issues....I won't go into details. Question this - Before probate, could the executor be changed and a different outcome occur ? Would this be a scheme falling under the anti-avoidance provision ??

This definition of Part 8 associate is very broad ie "relative"....s70B SISA : "relative" of an individual means the following:

(a) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the individual or of his or her spouse;

(b) a spouse of the individual or of any other individual referred to in paragraph (a).

 

[The Porky]

Thank you Paul for the reply.

Given you response it would appear that there is no definitive decision from the ATO and that this area remains unclear.

Subsequent to my original post I have since being advised that the executor of my Step Grandfathers estate is his son (ie. making him my step uncle).

Therefore given the information you have provided my SMSF wouldn't be able to purchase the property from him.

Just out of curiosity if the executor of my Step Grand Fathers will was lets say his friend. I assume that under the provisions of the act that my SMSF would be able to purchase the property given that he wouldn't be a "related party" of the SMSF.

Cheers

 

[The Porky]

SMSF purchase

Hi

I was just wondering if anyone was able to provide me any further clarification.

Since my first post I have found out that the information I had stipulated in the first instance was slightly incorrect and is a little more complicated than what I had first thought.

In that I have the opportunity to purchase my step grandfather?s property and I want to do so through my SMSF (ie. outright). As I have enough funds to do so without a loan from the bank.

However I not sure if the purchase would be compliant with the current rules.

The intentions are to buy the property through my SMSF and then rent it out until I am at retirement age at which time I would move in and live there.

My step grandfather passed away however the property that he purchased and did live in for the last 15 years. Although purchased by him originally was for whatever reason registered and remains in the name of his son (ie. my step uncle). It also happens that my step uncle is the executor of the estate.

Am I under the legislation able to buy the property directly off my step uncle ?

Alternately what if the property was transferred for arguments sake from my step uncle name to his friend and then I purchased. Would this be allowed?

Look forward to any replies

 

[Paul@PFI]

Family Trees and low lying fruit

A related party is actually quite clear. S70B guides the reader of the SIS Act to the definition for "relative" of an individual...

relative" of an individual means the following:

(a) a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the individual or of his or her spouse;

(b) a spouse of the individual or of any other individual referred to in paragraph (a).

Step uncle was married to aunt ? The underlined bit seems important. And (b)....Its got you anyway you look at it.

Its not permitted.

 

[The Porky]

Thanks again Paul for the reply most appreciated.

Just to clarify my step grand father had two other children (ie. 2 sons) with my mum being one of them.

However my grand father was not my mum's real father and she only became part of the family when my grand mother married him. (ie. my mum wasnt legally adopted by my step grand father)

My step grand fathers property is and has always being in the name of one of his son's as I found out. (ie. my step uncle).

Therefore he is my mother's step brother making him my step uncle. This is why I am trying to clarify if under the act I would be allowed to purchase.

Thanks

 

[Paul@PFI]

Paul

So your grandfather and grandmother were married. You are a lineal descendant ?

Pardon my bad homour - No offence intended. But is this a Tassie family ?? You said GF had two sons...One being your mum ? Thats a bit wierd. Alternatively I read this gramatically as "had two other chn with your mum"...Even wierder. You have to appreciate that your info is very lacking.

Am I right in interpreting as :
- Your mother born of an un-named father by your grand mother.
- Your grandmother later married your Step GF
- Your Step GF did not adopt mum. But her mother is your grandmother now married to step GF. So a lineal decscendent of grand mother.
- Grand mothers spouse is step grand father.
Therefore....s70(B) (b) applies.

Therefore "relative" applies to circumstance ? The word "marriage" isnt a condition. The term spouse of a related party is. A spouse need not be married. A spouse may occur before or after birth of your mum and s70 doesnt care who your mum is related to by marriage. If she is related to your grandmother by blood then the fact that grandpa was spouse of hers is fatal to your case by both linear and spouse lines.

You could only be certain s70(b) doesnt apply only by engaging a lawyer who is qualified to interpret this law in the case of its application to the Acts Intepretation Acts and any other Commonwealth law which governs marital relationships. ie just as same sex relationships are governed by a Commonwealth Act which can impose issues with s70(B).

 

[The Porky]

Purchase through a SMSF

Hi Paul

Thanks for the reply.

No offence taken I read your post and found it quite funny. To be honest the detail contained within my post weren't clear and I could have made a better attempt.

Answers to your questions are as follows:

- Your mother born of an un-named father by your grandmother.

a. Yes that is correct

- Your grandmother later married your Step GF

a. Yes that is correct

- Your Step GF did not adopt your mum. But her mother is your grandmother now married to step GF. So a lineal descendent of grandmother.

a. Yes that is correct

- My Step GF had three children in total (ie. two sons of his own and my mother)

b. Yes that is correct

The property in question that I am looking to purchase through my SMSF although originally paid for & lived in by both my step grandfather and my grandmother.

The title of the property was never in their names but was originally registered and continues to be in the name of my step uncle.

Therefore I would be effectively purchasing the property directly from my step uncle given that it?s in his name.

So would section s70 (B) still be relevant therefore disallowing me to purchase?

Cheers