Developing related party land
Jack and Jill are trustees of a SMSF. They have a block of land in their SMSF that has no debt, and they would like to use an SMSF Complying Loan to build a commercial office building on the block of land.
Can they do this?
Reasoning: SMSF Complying Loans cannot be used to develop land of a related party of the Fund, including the Fund itself, whether it is a commercial property or a residential property being built because of the related party acquisition rules of SIS.
An alternative: If Jack and Jill wanted to Fund the development of the property via an SMSF Loan, an alternative could be to transfer the land to Jack and Jill in their personal names. Jack and Jill could then take out a loan in their personal names to construct the property (as long as it was commercial property) and upon completion of the construction, sell the commercial property to the super fund, and pay back their own personal loan with the proceeds. This would of course depend on the personal circumstances of Jack and Jill.
Purchasing from a related party vendor
John and Jane are trustees of a SMSF. John owns in his personal name a residential house he is using as an investment property. John believes the house will very shortly appreciate dramatically in value and wishes to use a Complying Loan to purchase the residential property in the name of the super fund.
Can he do this?
Reasoning: You cannot use an SMSF complying Loan to purchase non-commercial property from a related party vendor under the related party acquisition rules of SIS.
Purchasing a Property to lease to an associated party of the Fund
John and Jane are trustees of a SMSF. John has a family run business, and he wishes to purchase an office premises to run the business from, however he does not have sufficient personal wealth to do so. John and Jane decide to use an SMSF Complying Loan to purchase the office premises through the super fund, and intend to lease the premises to the family business.
Can this be done?
Reasoning: The vendor of the property is an arm’s length vendor, so there is no issue with the in-house assets test. Whilst the lessee is a related party of the Fund, the property is commercial property so therefore the in-
Purchasing multiple properties over multiple titles
John and Jane are trustees of a SMSF. Jane has recently seen notices for a block of apartments recently built that are individually for sale, and at great prices. These apartments have been built by a non-related party of the Super Fund and are on separate property titles. Jane consults with John and they decide that they would like to use an SMSF Complying Loan to purchase two apartments in this new complex.
Can they use a SMSF Complying Loan to do this?
Answer: Yes , although they would need to commence two separate loans, one for each property, and have two separate Custodian Trusts, one for each property. The two separate Custodian Trusts could, however, have the same Trustee.
Reasoning: Our interpretation of the legislation is that each Trust can only hold one asset at a time.
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