SMSFs and co-owning property with related parties – What you need to know

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SMSFs and co-owning property with related parties – What you need to know

November 2021

SMSF & Property series: Part 3
Written by Mary Simmons, Technical Manager, SMSF Association

In Part 1 of our property series, we explored the issues associated with SMSF trustees purchasing real property outright where sufficient wealth has been accumulated in the fund. However, with reduced contribution caps and members’ total superannuation balances limiting the future ability for many SMSF members to accumulate sizeable superannuation benefits in their fund, there is a need to consider alternative funding options.

In Part 2 of our property series, we considered one funding option which involves an SMSF borrowing to acquire real property. Although permitted by law, the risks and complexity associated with borrowing to invest in property means that it is not a suitable strategy for many SMSFs.

As an alternative funding option, SMSFs may wish to seek specialist advice which considers investing in property, in conjunction with other parties. In this article, we look at co-owning real property with another party, including members, under a tenants-in-common structure.

What is a tenants-in-common arrangement?

Where your SMSF acquires real property as a tenant-in-common, your SMSF will own a fixed distinct proportion (or fraction) of the property. Each tenant’s interest is separate and distinct from the other owners which allows each owner to dispose of their share independently of the others.

It also means that the ownership between the different parties can be held in different proportions. For example, your SMSF could own one third of the property and another party could own the other two thirds.

The ability to apportion the income and expenses associated with the property between investors, based on their fractional interest in the property, also makes the arrangement easy to administer. The SMSF would simply disclose its share of net income and expenses, in its tax return each year.

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Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.