There maybe a way to live in a residential property brought is a SMSF?

[Sheryn]

Just read the article in The Age titled "Building for Retirement"

http://theage.domain.com.au/real-estate-news/building-for-retirement-20121116-29fhm.html


Now I was lead to believe that there was no way you or a relative could live in a residential property purchased inside a SMSF as it must be at arms length.

The last paragraph in the quote below from the article says you can move in if your SMSF is in pension phase and I assume you are over 60 years of age.

What I would like to know is the article correct, can I buy or build a residential property inside SMSF and rent out for say 3 years then move in when 60 years of age with no CGT to pay as SMSF is now in pension phase?

Be flexible

If you or a relative live in a property purchased by your super fund this will breach the ''sole purpose'' test and make your fund ''non-compliant''. But Cameron Yates, the director of sales at Hamton, which is building the Haven on the River apartments in Abbotsford, says an owner can relocate to a SMSF property once a fund moves into the pension phase.

''Some of these smart owner-occupiers [buying apartments at Haven] are purchasing through their SMSF and renting out the apartment,'' Mr Yates says. ''They get to move in during pension phase capital gains tax-free and also sell their family home CGT-free.''

Regards
Sheryn

 

[Property Hoarde]

No it is not correct.

When the fund is in pension phase the fund can sell you the property (at market) and the fund will pay no CGT on the property. You may have to pay Stamp duty.

But you can not move in until it is in your name.

At the moment you can still transfer to you the property as a lump sum pension payment.

 

[Property Hoarde]

"if a related party lends money to the trustee of the fund, it has to be a real loan, not a paper transaction. ''It has to be a properly documented loan and actual funds have to be paid over by the lender,'' he says."

This also can not be done. the related party can be the lender to the bare trust trustee. Not to the fund directly.

 

[coastymike]

A real estate agent providing incorrect advice to sell property. Cannot live in the property during pension phase. Need to move the property to the member for market value. Very poor advice.

 

[Sheryn]

A real estate agent providing incorrect advice to sell property. Cannot live in the property during pension phase. Need to move the property to the member for market value. Very poor advice.

Just to clarify that I understand...

So you could in theory buy a block of land, build a house and rent out the house inside your super fund, then in pension phase sell the house to your self or a relative at market value and pay stamp duty.

Profit or loss would stay inside super fund tax free after 60 years of age if in pension phase.


Regards
Sheryn

 

[Sheryn]

You may have to pay Stamp duty.

But you can not move in until it is in your name.

At the moment you can still transfer to you the property as a lump sum pension payment.

Didn't know I could transfer the property as a lump sum pension payment and of course pay stamp duty.


Hmmmm the possibilities.


Regards
Sheryn

 

[Rob G.]

My understanding is that a pension payment cannot be in-specie.

Therefore a commutation is required.

A question for the SMSF planners:

If my understanding is correct, then since the asset to be distributed would not be supporting an exempt pension at the moment of payment, CGT would apply at 10%.

Cheers,

Rob

 

[Property Hoarde]

Just to clarify that I understand...

So you could in theory buy a block of land, build a house and rent out the house inside your super fund, then in pension phase sell the house to your self or a relative at market value and pay stamp duty.

Profit or loss would stay inside super fund tax free after 60 years of age if in pension phase.


Regards
Sheryn

Yep you can do that and if in pension phase the profit (CGT) or income would be tax exempt.

 

[Property Hoarde]

My understanding is that a pension payment cannot be in-specie.

Therefore a commutation is required.

A question for the SMSF planners:

If my understanding is correct, then since the asset to be distributed would not be supporting an exempt pension at the moment of payment, CGT would apply at 10%.

Cheers,

Rob

It is a little questionable, APRA appear to say no, the ATO (who look after SMSF's) sort of says it is ok.

This might change in the future so be careful.

I would be planning on being able to purchase the property. If you purchase the property then the SMSF would have the cash which it can pay straight back to you as a pension because there are no max limit on pension payments (if the member has fully retired)

So if the member is retired (not on a TRAP) and they convert their balance to a pension before the payment, any asset supporting the pension would be tax exempt including the property.

 

[Terry_w]

It could be possible to transfer from the SMSF to a member without stamp duty in some states - no change in beneficial ownership for a one member fund???

I have not looked into this so don't know the answer, but may be worth looking into.

 

[Rob G.]

It is a little questionable, APRA appear to say no, the ATO (who look after SMSF's) sort of says it is ok.

This might change in the future so be careful.

I would be planning on being able to purchase the property. If you purchase the property then the SMSF would have the cash which it can pay straight back to you as a pension because there are no max limit on pension payments (if the member has fully retired)

So if the member is retired (not on a TRAP) and they convert their balance to a pension before the payment, any asset supporting the pension would be tax exempt including the property.

I am thinking more of the SMSF that has only a property and little else. e.g. via instalment warrant scheme etc.

If they cannot temporarily borrow to purchase the asset from the trust, then a commutation is necessary.

I suspect this could be a common problem in a few years.

Cheers,

Rob

 

[Sheryn]

There would be quite a few people who brought a house at the beach not necessarily in their SMSF, paid the beach house off over time, then they sell their own PPOR and move into the beach house in retirement.

Would be a good strategy to motivate people to save for their own retirement.

The original newspaper article has given me lots to think about and questions to ask our accountant.


Thanks
Sheryn