Yes, a Self-Managed Superannuation Fund (SMSF) in Australia can sell a property it owns to its member(s) or other related parties, as there is no explicit prohibition under the Superannuation Industry (Supervision) Act 1993 (SIS Act). However, the transaction must adhere to strict conditions to ensure compliance and avoid penalties from the Australian Taxation Office (ATO):
- Arm’s Length Basis and Market Value: The sale must be conducted at arm’s length, meaning the price must reflect the current market value of the property. This value should be determined by a qualified, independent valuer to provide objective evidence. Failure to do so could result in the income being treated as non-arm’s length income, taxed at the highest marginal rate (up to 45%), or other compliance issues.
- Fund Documents Compliance: Review the SMSF’s trust deed and investment strategy to confirm there are no internal restrictions on such sales.
- Tax Implications: Capital gains tax (CGT) will be applicable on the profit from the sale. If the property is held for more than 12 months before it is sold, the long-term CGT discount of 1/3rd will be applicable. The remaining capital gain will be taxed at 15%.
- In-house Asset Rules: Ensure the sale does not breach in-house asset rules (limited to 5% of the fund’s total assets)
- Other Considerations: This applies to both residential and commercial properties, though rules differ for acquisitions (e.g., SMSFs generally cannot buy residential property from related parties).
Under the following circumstances, in-house asset rule may get attracted for the property sale to its member:
- Deferred Payments or Instalment Sales: If the member pays the consideration over a period of time, rather than upfront, the outstanding balance owed to the SMSF is treated as a loan to a related party, qualifying as an in-house asset.
- Vendor Financing Provided by the SMSF: If the fund directly finances part of the purchase (e.g., via a loan agreement), this explicitly creates a loan to the member, counting as an in-house asset.
- Lease-Back or Ongoing Arrangements: If the sale includes a lease-back where the member leases the property back to the SMSF (or part of it), the leased portion becomes an in-house asset under section 71(1)(g). This is rare in sales but could arise if the transaction is structured to retain some fund interest in the property.
