Tax and legal advice

Investors ask: Renting out properties purchaused using an SMSF

By Reporter

Q. If you buy residential property through your SMSF, can you rent this property out to an independent company who then leases the property to a related party of members of the fund, or would this still be caught under related party legislation?

A.The simplest way to determine if you’re breaching the related party rules is this: If it sounds like you are trying to circumvent the law, then you probably are.

SMSF residential property rules are very clear that the property cannot be occupied by anyone who is a related party of the fund. You cannot benefit from the enjoyment or use of the property. So regardless of the number of leasing contracts you go through, at the end of the day if a related party of the fund benefits from the use of the property, the answer is no, you cannot do it.

To ensure you get this right, you need to understand who a ‘related party’ is. It is a member of the fund, relative of a member, employer who contributes to the fund or an associate such as a business partner and their relatives.

You also have to consider if the rental transaction is being done at arm’s length, which would stop any related party entering into the lease agreement as they are not at arm’s length from the fund.

Dominique Bergel-Grant, founder and director, Leapfrog Financial

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Investors ask: Renting out properties purchaused using an SMSF
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