Can a Self-Managed Super Fund acquire property from a related party?

This is a question we get asked on a daily basis especially surrounding residential property.

Removing much of the complexity, the short answer is yes and no. I know it can be confusing.

To be clear, a self-managed superannuation fund (SMSF) can acquire property from a related party only where the property is deemed to be business real property. Further that transaction must be transacted at normal arm’s length market rates to avoid any compliance related issues.

Therefore an SMSF cannot ordinarily acquire residential property from a related party [unless it falls under the definition of business real property].

Who are deemed to be related parties?

Related parties of an SMSF include:

• The relatives of each member
• The business partners of each member
• Any spouse or child of those business partners
• Any company the member or their associates control or influence
• Any trust the member or their associates’ control.
• Employers who contribute superannuation to each member and associates of employers who do so.

What is business real property?

The concept is discussed at length in ATO ruling SMSFR 2009/1 and defined in subsection 66(5).

Without going into the technically; Business real property is broadly defined as any freehold or leasehold interest in land and buildings that is used wholly and exclusively in a business.

Related parties and SMSF members are able to rent or lease business real property from SMSFs but not residential property owned by SMSFs. All leasing of properties by SMSFs is also required to be at commercial rates i.e. “arms-length” arrangements.