Ok so I’ve got a hypothetical situation that I would like some advice on.
Situation
I’m looking at buying a property in Sydney within the next few months to live in. This will be the first property that I’m buying to live in.
I have an investment apartment in Sydney selling in the next week to which I will have say 100k.
I have about 100k tied up in Military Super which I don’t believe I can access.
I’m now employed in a private company with MLC Super for the past year.
Age 26
I have a friend looking to do the sameThe Idea
Instead of buying in Sydney now with somewhat over inflated prices, I want to establish a SMSF, buy a property, have the rental yield evaluated then lease it to a close friend on paper. He would do the same and I would lease his property on paper. We would both live in our own smsf property’s as this is preference, but have addresses state otherwise.
Meanwhile we are saving our typical mortgage payment – rent paid to the smsf in a savings account for other investment opportunities that we will enjoy the rewards before retirement.Logistics
If I can not access my Military super I would deposit my investment property profit to my SMSF to meet the 20% deposit.
Ideally I would like to use my Military tho. My current employer would contribute to the fund and pay off the property in sync.
My address would not be the SMSF property on tax statements, electoral roles or drivers licence or bills.I see this as a perfect scenario and am not sure why it is not legal. I assume because if every one did it, people could get caught out in bad investment with their super and there would be people out their looking to take advantage of the naive. But is having your cash tied up in investments you have no control over with a super company any different. And the chance of another GFC.
This way, I’m taking advantage of the money I already have to create more money now and less interest.
Honest advice and please state answers with facts not just opinions. I’m very much a read between the lines person.
Thanks :)
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This topic was modified 9 years, 7 months ago by
Bill Atlee.
Hi Bill
Ok let us work thru the relevant steps.
1) There is nothing to stop you establishing your new SMSF and have your current employer pay your compulsory employer contributions into the new fund.
2) There is nothing to stop you making a non deductible contribution of 100K into the fund (assuming you have not exceeded your limit in this financial year or over the last 3 years).
3) There is nothing to stop you purchasing a property for rent thur your SMSF borrowing under a LRBA and renting it to a friend at market value.
What you cannot do is occupy or rent the property or allow any member of the fund to occupy or rent the property (Assuming it is residential) even at market rent.
Doing so would make the Fund non compliant and would be taxed at the highest rate.
You may also find that the ATO deem the fund needs to be wound up.
You could certainly rent your friends property and he rent yours at market rent and increase your SMSF value accordingly.
Hope this helps.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Cheers Richard,
What is the maximum contribution p/yr?
Could my fiancé / wife lease the property if she was not part of the fund?
Do you know how the ato would come to the conclusion that you were living in your SMSF?Contribution limits are aged based:
Concessional contributions for someone aged 48 or under = $30,000
Non concessional contributions for this financial year are 180K or 540K over a 3 year period.
A family member or related party is unable to rent the property.
The ATO would rely largely on the Trustees / Members doing the right thing and complying with the legislation.
It is unlikely they would pop round and ask you if that’s what you mean.Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
and whose name is the electricty in, one of you has a partner and things go bad, her lawyers find out you’reliving in a property owned by your SMSF
buy an investment that makes sense as an investment and rent to live where you want to live
Partners are included in the individual SMSF’s.
does it not make sense to pay rent on your own investment opposed to someone else’s tho?
I see it more benificial to live in you investment. Win winThoughts?
Partners are included in the individual SMSF’s.
does it not make sense to pay rent on your own investment opposed to someone else’s tho?
I see it more benificial to live in you investment. Win winThoughts?
partners are not included in an individual SMSF but a spouse is a related party and a member or a related party cannot benefit from the member’s super until that member meets a condition of release.
It makes perfect sense because the sole purpose of super is to assist in a member’s retirement.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
As in the smsf would have 2 members being myself and my wife..
But that’s just what the government governs you to do. Financially it makes more sense to have access to it now as long as it is still an investment. Exactly the same as using it to buy your business premises if you pay rent to it. Your saving money now while adding growth to your investment.
ok,
Yes it seems silly that they allow it for business but not non business property. I suppose the problems that could arise would be people not being able to pay the rent and the trustee (them) having to kick themselves out of their own home.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Administrative penalty $10200, civil penalty potential $340000.
Hi ctk,
where do those figures come from and under what circumstances?http://www.afr.com/it-pro/how-to-avoid-tough-new-smsf-penalties-20130120-k0n0i
http://www.topdocs.com.au/files/technical_article/Understanding_SIS_Concepts.pdf
circumstances breach of sole purpose test
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This reply was modified 9 years, 7 months ago by
crj.
Best to look at the actual laws in relation to this
see http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/
SIS Act
look at Part 20, from sections 157 onwards. also Part 21Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Here is a case, from 2014, where the member caused the fund to lend to a relative who them lent the money back to the member – who later went bankrupt!
Deputy Commissioner of Taxation v Lyons [2014] FCA 1353.
An SMSF trustee has been fined $32,500 for lending money to a related party, in a recent Federal Court case,
http://www.solepurposetest.com/news/smsf-trustee-fined-32500-loan-relative/Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thinking about the Lyons case further. Mr Lyons became bankrupt at some stage after lending SMSF funds to the brother in law (BIL). This loan was between the SMSF trustee and BIL – and would generally be legally enforceable, even if no contract or deed entered into, for up to 6 years after the loan was made.
If Lyons was bankrupt the trustee in bankruptcy would stand in his shoes and control the assets of the bankrupt. These assets may include shares in the trustee company. Therefore a trustee in bankruptcy could potentially control the trustee company and thereby the SMSF. It could then sue the BIL to recover the money. Not that there is any point really as the money would come back into the SMSF and usually couldn’t be attacked by the trustee in bankruptcy. But it could have happened. Nearly $200k was lent so the BIL put himself at huge risk doing this.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Bill
One hopes nobody from the ATO is reading this thread as I suspect your user-id is your actual name ! It might be tricky to get an ABN or Tax File Number issued for the proposed SMSF if they were onto your intentions, so you’d stumble at the first hurdle.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Just starting the hypothetical conversation my friend. It doesn’t seem dodgy to me but the ato don’t allow it. Like I said before, why for business but not for personal. At the end of the day, saving money on ur business premises or while building ur super when you sell the commercial proper is personal gain so I fail to see the difference apart from the actual ruling
Good to hear it’s just a hypothetical, Bill :) You’d be surprised how many people think they can do whatever they please despite superannuation laws.
It is indeed silly that it is allowed for commercial but not resi but oh well. I suppose because commercial can still generate income, whereas if you reside in a resi property owned by the SMSF, no income can result.
Some friends of mine have acquired a vacant commercial site in their SMSF, and have just finished the fit-out and are now operating a business from the site (from a separate company that leases the property from the SMSF). They enjoy running the site and intend to keep it, however when buying a vacant commercial site and then building a thriving business in it, it would be very tempting to then look at the resale value of the business and the site.
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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This topic was modified 9 years, 7 months ago by
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