Subdivide & Develop inside SMSF?

[Ian (WA)]

'Evening All,

trying to follow up on query for friend regarding whether or not a person can subdivide and develop a resi prpty inside SMSF.

I've done a lot of searching in forum, ATO site & Google and only info I can find pertains to LRBA (borrowed funds) and the answer is "No".

What if the SMSF has enough cash in it such that there would be no borrowings from a bank......could the SMSF company buy a property, demolish & subdivide?

I am aware of the commentary regarding sole asset material change into multiple holdings etc, but once again I can only find commentary on this relating to LRBA.

Any help appreciated!!

Cheers,

Ian.

 

[Tano]

I found this in my notes, not sure if it helps

SMSF can’t borrow money to renovate or improve a property purchased through a SMSF while it is still under a loan

 

[Ian (WA)]

Thanks Tano.....yep aware of all that.

My question is "Can a SMSF trustee company subdivide & develop a property where there are no borrowings?

The fund has enough cash to do a development so there are no borrowings.

Cheers!

 

[coastymike]

Ato has a guide called running a business in your smsf. Basically if you arent borrowing and develop in an smsf using the smsf and provided you meet the sole purpose test and your deed doesnt contain any prohibitions and your investment strategy allows it then there is no restriction in your smsf doing such a development.

 

[Paul@PFI]

Develop SMSF

Agree with Mike. Its not prohibited as such...Only operating a business is.

Problems that arise:
- Preservation. You make $$$. It must stay in SMSF.
- Poor planning. The final result may lose $$$
- Stamp duty, land tax ...Often from lack of experience and professional guidance in pre-planning.

One thing to watch is the SMSF trying to sell you one of the subdiv sites after build....Hard to see how sole purpose isnt an issue. While there is a proposal to stop related party sales it hasnt happended yet. But sole purpose may still fail if SMSF is used as a the funding vehicle to provide you with a personal benefit.

 

[Ian (WA)]

G'day Mike & Paul,

Thanks for your replies and the info therein.

Yep it looks like although it might be doable, it is full of inherent complexity and risk to the point of being too far to the edge of being comfortable trying to attempt something like this.

Fortunately I haven't even gone down the SMSF path myself yet and there is no way at my stage of life I need the grief of living with the shadow of a potentially dubious arrangement hanging over my head.

I'll probably do another small development from within my company / trust vehicle again before I retire and just be content with that. I'll set up a SMSF in due course but for a single, straightforward asset acquisition.

My friend is onboard and doing more research into this subject matter and will no doubt find an appropriate direction in which to channel his SMSF.

Thanks again gents.

Cheers,

Ian.