Can I live in my SMSF property?

Owning direct property has always been a popular investment choice for SMSFs. The ATO’s March 2024 statistics show that around 15% of all SMSF assets are held in direct property assets, including residential and non-residential property owned both in Australia and overseas.

With an increased interest in SMSF property ownership, a question that pops up quite often is if the SMSF members, or their family, can live in their SMSF-owned property.

In almost all cases, the answer would be no.

Superannuation rules on the use of SMSF assets

The personal use of SMSF assets is prohibited and there are quite severe penalties that can be imposed on the fund trustees where they allow this to take place.

The most obvious issue relates to the sole purpose test, which requires that all SMSF assets are purchased and held for the sole purpose of providing retirement benefits to the members of the fund.

This requires the trustees of the fund to make decisions that are in the best ‘retirement interests’ of their members, not their current interests, or the interest of the fund’s related parties. 

Allowing a member of the fund, or any of their relatives, to live in a property owned by their SMSF would be in breach of the sole purpose test. 

The in-house asset rules could also be an issue for most SMSF trustees as these rules apply a maximum limit of 5% on the total fund assets that can be leased to a related party of the fund.

Keep in mind that even if the value of the residential property leased to a related party is within the 5% limit, the sole purpose test would still NOT ALLOW the lease to take place.

Rare situations when it may be allowed

There are some extremely rare situations where an exception to these rules could apply that would allow related-party use of an SMSF property for residential purposes. These situations would include:

A hotel or motel business

Where the property is owned by the SMSF and a related party is actively managing the hotel or motel business and is required to always be available, so they live on site.

The related parties ‘residential use’ of the asset would be incidental to the business being carried on.

Primary production business

Where primary production land is owned by an SMSF and is used in a primary production business, there can be residential use of a house on that land so long as that area of the overall primary production land that is used for residential purposes is no more than two hectares (including the house and surrounds).

Again, the ‘residential use’ of the asset would need to be incidental to the business being carried on.

Moving the property out of the SMSF

It is important to note that these investment rules and restrictions would only be relevant at times where the property is owned and held through the super fund.

If the property is transferred out of the fund by way of an in-specie benefit payment, or where the SMSF sells the property to a related party, then these restrictions would no longer be relevant.

It is not uncommon for an SMSF member to request an in-specie payment of their member benefits held in the fund by way of a transfer in the ownership of the property.

Once the transfer is complete and the property is owned personally by the member, then the property could be used for any purpose that the member wishes. Of course, the member would need to satisfy a condition of release that allows unrestricted access to their benefits for this to be allowed.

If you own property through your SMSF, then make sure you adhere to the applicable investment restrictions.

If you are looking to transfer the asset out of the fund as part of a member benefit, or sell the asset to a related party, then this would need to take place at market value on arm’s-length terms.

It would also be prudent to seek advice on any tax or stamp duty outcomes that may apply should you be looking to transfer or sell the fund’s property assets.

If you have any questions please call the Frontgate team at 07 4151 8898.

Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.