Can I live in my SMSF property once I retire?

Property is a popular self-managed super fund (SMSF) investment in Australia.

They are generally easy to manage and many of us understand the fundamentals of property more than we understand stocks and shares, and a lot of us just feel more confident when our money is invested into something we can physically see.

However, there are some rules you need to know about, especially when it comes to asking whether you can live in your SMSF property once you retire. Retiring normally means having turned 65 or leaving an employer once you reach the age of 60.

We answer some common questions below.

Can I purchase a property via my SMSF?

Yes, you can purchase a property via your self-managed super fund. However, the decision to set up an SMSF for this purpose requires careful consideration.

The titles of SMSF properties are held by the trustee or trustees on behalf of the superannuation fund.

The rent from the SMSF property will be paid into the SMSF as income and the SMSF is responsible for all costs related to the upkeep and maintenance of the property.

The laws around how a self-managed super fund manages investments are strict, and they essentially prohibit us from living in a property owned by our SMSF – or at least until we retire and the property is transferred to the member(s).

The rules that govern how an SMSF property can be used are determined by what is known as the ‘sole purpose test’ and related party rules.

The sole purpose test

Essentially, under the law, you can rent out a residential SMSF property as an investment property, as long as it is not rented to any member of the fund or a relative of a member of the fund, even if they pay rent at market value. A commercial property owned by an SMSF can be rented to a member or a related party.

This is because the sole purpose of superannuation must be to benefit your retirement – not to benefit your current living arrangements or benefit you financially before reaching retirement.

That’s the sole purpose: to benefit you once you retire.

What about in-specie transfers?

When a superannuation fund is wound up, generally the investments are cashed out and the funds are given to the retiree.

The exception is in-specie transfers, when instead of being sold, the title of the SMSF property (or other assets) is transferred to the SMSF recipient on retirement.

There may be benefits to in-specie transfers such as not having to pay stamp duty on the transfer. The recipient avoids the selling and buying costs usually associated with property.

The most important thing to remember though, is that the Australian Taxation Office (ATO) must be convinced that any benefits you receive from the transfer of the SMSF property pass the sole purpose test.

So, can I move into a property purchased by my SMSF at retirement?

The short answer is yes, but only when you are legally allowed to access your superannuation and have transferred the property (in-specie transfer) or sold it from your SMSF to yourself. You do need to carefully consider the tax or stamp duty and Centrelink implications of such a transfer or sale.

When you retire and start receiving an income stream or pension from your SMSF, you can sell the home in which you currently live and deposit the money into your SMSF account (subject to contribution caps or downsizer contribution rules). Once you have done this, you could transfer the title of the SMSF investment property into your own name.

So, essentially, you’re purchasing the investment property from your SMSF.

Need SMSF property advice?

Property is considered by many Australian’s as a sound and safe investment option, however it’s important to consider all the legal requirements that go along with it and the investment risk.

SMSF regulations are complicated and precise, and legislative changes mean fund members need to be constantly across the changing space. Failure to comply can result in hefty fines and significant financial costs.

At LDB Group, we have a team of specialists in SMSF management who can advise and lead you through every step of the SMSF journey. If you need advice relating to your SMSF give us a call on (03) 9875 2900 or send us details via the contact form below.