Transferring $1M into a SMSF tax-free!

[JIT]

Hi there,

If a SMSF holds a residential investment property, when it is in pension mode, can it sell this property to a member tax-free?

I understand a SMSF can't buy a residential property from a member unless it is worth less than 5% of its total assets, but can it be sold to a member?

If so, say the SMSF property is worth $1M, and the member happened to have $1M outside the SMSF (eg. from the sale of a large PPOR), is this a way to transfer large amounts of money outside a SMSF into a SMSF?

The property sold to the member could be a smaller property suitable for the member to downsize to in retirement.

It would also be CGT-free to the member as a PPOR.

Thanks.

 

[Terry_w]

Off the top of my head...

No, I don't think a member or associate could acquire a property from the SMSF.

Deductible contributions can be made by members, $150k per year with 3 years brought forward = $450,000. 2 members could possibly do this = $900,000.

I also think, but haven't checked, it may be possible to do $450,000 in June and then another $450k in July if you haven't done any in the prior 3 years and will not be able to contribute any more undeductible contributions for another 3 years from July.

 

[Terry_w]

Thinking about this further I think it may be possible to transfer a property from a SMSF to a member if done on am arms length basis.

 

[coastymike]

There is nothing to prevent an smsf transferring a property to a member. Just need to comply with the sis act and regulations.

The other way around is an issue.

 

[GaryT]

Off the top of my head...

I also think, but haven't checked, it may be possible to do $450,000 in June and then another $450k in July if you haven't done any in the prior 3 years and will not be able to contribute any more undeductible contributions for another 3 years from July.

If you contribute $450,000 in June, then you will not be able to make any more non-concessional contributions for 3 years. What you could do is contribute $150,000 in June and then $450,000 in July and then no more non-concessional contributions (lets get the names correct) for another 3 years.

But this has nothing to do with paying monies OUT of an SMSF or selling the property to a member.

Selling a residential property from an SMSF to a member if OK as long as SIS regulations are met. Selling the property is merely the sale of an asset and not a contribution or a benefit. The effect would be to convert the property to cash in the SMSF, and convert the cash to property for the member. There would be no CGT in the SMSF as long as associated members are in pension phase. If the property immediately became the member's PPOR and they did not have another PPOR then there would be no subsequent CGT on it either.

 

[JIT]

Nice reply Gary, thanks.

 

[Terry_w]

I've read reports about some SMSFs being as large as $160mil (from memory) and the govt being concerned about the potential of less tax revenue.

Wonder how some of them got this large?

 

[coastymike]

I am aware of one fund which has around 10m. Created when a loophole existed in the legislation that has since closed. All legal at the time.