Buying Property with your SMSF ~ Co-Ownership
Trustees of SMSFs that wish to own property in their super fund have a variety of different options available to them depending on their particular circumstances.
One of those options is to purchase a property whereby the ownership is shared between the super fund and a related party. A common way to do this is to own the property directly as tenants in common. The super fund and related party each pay for their ownership interest from their own funds and they are then each entitled to that share of income or loss from the property.
Utilising this strategy may allow for the purchase of a property that neither the related party nor the SMSF could purchase on their own and can be useful in certain circumstances. One of the potential drawbacks to this strategy is that the super fund cannot purchase the related party’s share of the property if it is a residential rental property. So, if for some reason the related party wished to sell their portion and the SMSF did not; the SMSF could not buy out the related party unless the property was business real property.
There is another strategy that can be considered which may offer a higher level of flexibility when co-ownership of a property is desired. This strategy involves the use of what is referred to as a 13.22C trust.
As a brief summary, a unit trust is established which meets the conditions of S13.22C and the SMSF and the related party purchase units in it. The property is then purchased by the unit trust with the proceeds it received from the sale of the units. The unit trust receives the rent and pays the expenses in relation to the property and the net income of the trust is distributed to the unit holders according to the number of units held.
There are particular rules and regulations that must be adhered to in order to make this strategy work effectively and remain compliant for SIS purposes, but it is worth considering in certain circumstances.
For a more information about the rules and regulations as well as a practical example in practice please Click Here
Regulation 13.22C rules can be found by clicking here:
