SMSFs & Property series (Part 1): SMSF investing in property direct

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SMSFs & Property series (Part 1): SMSF investing in property direct

SMSF & Property Series: Part 1

Written by Mary Simmons, Technical Manager, SMSF Association

SMSF trustees’ love of property remains steady, with ATO statistics over the years confirming that residential and commercial property make up about 15% of all SMSF assets. This has been the case consistently over many years, even though the total value of assets owned by SMSFs has increased.

During this series of articles focusing on property, we start by exploring the key issues that need to be considered by a trustee when investing in property directly before we look at the option of borrowing and alternative ways an SMSF can structure to invest in property.

Key considerations SMSF trustees need to take into account when investing in property directly

Is the sole purpose of your investment to provide for your retirement? 

First and foremost, if your SMSF is investing directly into property, it is important to make sure that the sole purpose of the investment is to provide for retirement and that there is no alternative driver, influencing the trustees’ decision to invest in the property.

For example, if your SMSF purchases the property because you like the area and you would like to purchase the property from your SMSF and live in the property when you retire, your SMSF is likely to fail the sole purpose test, if the capital gain and rental income prospects in the area are poor. The sole purpose test requires that your fund must be maintained for the sole purpose of providing retirement benefits to your members, or their dependants if a member dies before retirement.

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