I would like to set-up the following structure and would like feedback if anyone has done something similar to this:
1) Buy a property for $300 under a unit trust structure.
2) Parents puts in funds of $200k and owns 2/3rds of the units
3) My superfund puts in funds of $100k and owns 1/3rd of the unitsThere are no borrowings required.
We will rent this property out for up to 6 months of the year & my parents will also rent the property for the other 6 months.
Please feel free in sharing your experiences…..
Hi Salocker,
I am not an accountant nor am I familiar with the ‘ins and outs’ of trusts or SMSF but……..from my understanding you will/may run into issues on two accounts.
The ATO is very atuned to individuals who live in their ‘trust owned property’ – I understand this is more of an issue when the family home is bought by the trust and you remain there and rent it from the trust.
The second issue you will have is you cannot rent a residential property part owned by your SMSF.
As an aside I wonder why you are contemplating such a convoluted arrangement – moving in and out every six months, setting up a trust jointly with your parents and so on.
Life doesn’t have to be this complicated.
Seek professional advice and if the ‘expert’ concurs then by all means set up a trust etc. Ed Chan makes the statement that approximately 60% of people do not need a trust – or was it 40%. Either way approximately half the population is not in need of a trust.
Derek
[email protected]
0409 882 958
Property investment advice and researched property in quality locations available.Like Derek said – This arrangement may be viewed as a scheme by the ATO. Under the sole purpose test a SMSF can not invest in anything that you, a family member or an associate gains any benefit from.
If the SMSF is buying units in a trust which owns a house, which is rented by your parents then I think you are skating on some mighty thin ice!
The ATO is all over this type of thing and have indicated that the sole purpose test is an item of focus for their compliance team.
By the way if your SMSF is found to be non-complying the penalty is 47% tax. This is NOT 47%instead of the normal 15% rate. It means the ATO takes 47% of EVERYTHING in the fund.
Get some very very good advice if you want to pursue something creative like this. I am not saying it can’t be done – probably can. But make sure you do it right as the penalties can be huge…
Cheers,
GregThis transaction can’t be done. It is a breach of the in-house assets test.
Thanks for the info guys.
The reason I was doing it this way was to….
1)Allow my parents to stay in the apt from overseas for 3-6 months
2)Later on the superfund is to buy units from my parents (within the unit trust) therefore giving
the cashflow in their retirement. This way Tsfr tax dosn’t apply as the unit trust is still the owner of the property.
3) Superfund increases asset value over the yearsI appreciate that it could be thin ice but it seems so logical. Any alternative ideas would be welcomed.
ThanksSal,
It is not only skating on thin ice but it is illegal (i.e. in breach of the SIS Act).
If the superfund then purchased units from your parents it would have breached the ‘acquisition of assets from a member rule’ SIS Act s 66(1) and (3). Not only can the ATO make the fund non-complying (yes you do lose half the assets of the fund) but the trustees can also be sentenced to a six month prison term.
Similarly income earnt by the SMSF may be special income subject to 47% tax rate ITAA 36 s 273.
wow that is serious stuff. I think I should change tact [cigar]
Thanks again for all the posts.
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