I have been advised by a Financial adviser that when I have my SMSF set up under my wife and I’s name that I legally am not allowed to rent the property to any family members e.g. my mother and father, Even though Mum and Dad have nothing to do with the SMSF.
I have looked on the ATO website but can’t find a ruling.
I have found out that you can’t do favouritism so to make sure that market rent is being applied to an annual rental appraisal by a local real-estate agent would be performed and added to the annual report.Does anyone have any experience in this specific subject.
Hi jassouth
All investments and transactions through a SMSF must be made at what the ATO classify as an “arms length transaction”. That is you cannot buy from yourself or anyone related, rent to yourself or to anyone related or sell to yourself or anyone related. If you do, you run a very high risk of forgoing the minimised tax that comes with having a SMSF.
Due to such large tax concessions applying to a SMSF the government want to make sure that everything is done at standard market levels. To ensure thus they have plain and simply said everything must be at arms length, no exceptions.
Hope this helps
thanks for the comment Josh,
I have found the following I believe it is from the ATO
"Trustees are prohibited from lending or giving financial assistance to members or their relatives of the fund"
as this specifically stats financial assistance which I don’t believe renting at market rent to a family member is, would there be any way around this- like making sure the rent goes through a real estate agent
Appreciate your comments
jassouth
you can run the risk but it is in no way worth it. All the properties that our clients buy through a SMSF do so through a leading firm on the Sunshine Coast who manages 500 SMSF’s. With their experience they plain and simply say it cannot be done legally. You forego not having to pay GCT or tax on rental income. It is not worth it at all.
If they are renting at market value why do they need to rent yours?
IF you do persist with renting to a relative then i would strongly advise that you approach the ATO prior for a PBR (Private Binding Ruling).
Just tell them what you intend doing, and the source for determining market rents. With luck they would agree with you and the auditor would just need to enforce annual rent reviews to bring the rent in line with market rates on a regular basis.
– If they disagree then you know not to rent to your relatives.
– I suspect they would enforce the "At arms length guide", but you never know unless you ask.
– an auditor / accountant on the forum might be able to tell us whether as part of the audit of the SMSF whether the tenants names are required to be checked in order to confirm the SMSF is acting as it should be.The penalties for not playing by the rules within SMSFs are very very harsh. Do yourself a favour and be absolutely one million percent sure you are playing by the rules.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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