Transferring Property Out Of Your SMSF

Question

Seeking to clarify what are the actual rules around someone that has reached preservation age 57 being able to now keep or use the investment property that is currently in the SMSF title and was purchased outright through the SMSF using Concessional contributions ie SG amounts? (has been rented previously with income following into SMSF)

Some super websites talk about selling your residence (if you have one) and putting that money into the fund then you can transfer title from SMSF to own name. Others talk about an “In Specie transfer or lump sum payments or take property out as a lump sum.

Other accountants have said can’t do it as must sell the property first, then put money back into SMSF, pull money out of SMSF as lump sum then purchase again arms length ??? or Put own money in to purchase at market value then can pull money out as tax free lump sum.

Basically is it permitted to transfer title now have reached preservation age from SMSF to own name, and if so is it tax free, or are there other tricky nasty rules around this to complicate everything that need to be followed to ensure no problems?


Answer

A SMSF cannot acquire property from you, it will be in breach of section 66(1) https://www.ato.gov.au/law/view/document?LocID=%22PAC%2F19930078%2F66(1)%22 unless it is business real property or widely held shares.

On the other hand you can acquire a property from your SMSF as long as you pay market price, or your SMSF balance is adjusted accordingly if you have met the conditions of retirement.   This is effectively the SMSF selling the property to you at market value so the SMSF may have a CGT liability.  If you have reached 60 or even just your preservation age if not working, then you can first put the SMSF into pension phase or at least your share to take advantage of the zero tax rate on the capital gain.  There are a few traps here that may mean not all of the gain will be tax free.  Such as your balance being over $1.6mil or other members in the fund that have a right to some of that gain not being in pension phase.

Until you transfer that property into your name you cannot stay there.  Staying there will make it an in-house asset.  The fund is only entitled to hold 5% of its assets in-house and that will be on the total value of the house.  Staying there while it is still in the SMSF name must be avoided at all costs.