Top 10 SMSF property questions (and answers)

Here are some great questions on property (and answers from our super experts) asked during our superannuation seminar that just wrapped up.

How do we transfer a property worth $2 million?

At $2,000,000, it gets difficult to transfer within contribution cap limits (unless we are using SBCGT as well) and not cop stamp duty. Basically, in Victoria, if the fund is paying for the property (either with cash or by borrowing) then there will be stamp duty – at least on this “paid” portion.

Can a residential property which is used 100% for the related party business, be transferred in specie?

If used wholly and exclusively for business purposes, then yes.

Can you use the 15-year exemption or retirement exemption to transfer farmland into a SMSF?

In order to apply any of the SBCGT concessions (including the 15-year exemption and retirement exemption), the seller needs to satisfy the basic condition, which are in the form of four tests. One of these tests is the Active Assets Test. This test will be satisfied if the seller owns the asset, and it is used or held ready for use, in the course of carrying on a business. You would need to ensure that it is actually used for primary production purposes (and this is reflected in tax returns) and is not just a “hobby”.

At a recent tax seminar, they said we could use the retirement exemption instead of the 15-year exemption to satisfy fewer conditions. This says no choice.

There is some debate around this, mainly due to the fact that the legislation spells out for the three other concessions, that if you would like to disregard them, then they can be disregarded. With regards to the 15-year exemption, the legislation is silent on whether it can be disregarded, hence the confusion.

In most instances, if the 15-year exemption is available, we see that the seller would choose to utilise it, as it will wipe out the entire capital gain, and if building superannuation balances is desired, it permits a higher amount to be contributed.

If we apply the 2-year deferral and don’t get a replacement asset – can we assume just pay deferred CGT if we can’t utilise the retirement exemption?

Correct. If you can’t use the retirement exemption, then yes, you pay the tax on the net capital gain in 2 years’ time.

How do you show the ATO your “intent” for a replacement asset if it doesn’t proceed?

There is no need to show the ATO intention to replace. If you elect the 2-year replacement concession, it defers the capital gain. If by the end of the 2-year period, you do not get a replacement asset, then you pay the capital gain.

How many lots of the $500,000 retirement exemption are available to be used and is it per concession stakeholder?

This is a lifetime only cap and its $500,000 per individual or CGT concession stakeholder.

In a SMSF, if they want to buy a commercial property but they don’t have enough cash, is it necessary to set a bare trust and get a LRBA?

Yes, as this is the only way it can be held whilst there is a borrowing over the asset. Providing the SMSF can obtain the finance. Requirements do change per state, however.

What happens when that loan (LRBA) is fully paid? Does the property go into the SMSF? Is there any CGT for the transfer of the property to the SMSF from the bare trust?

When the loan has been re-paid, the registered title can be transferred back to the SMSF trustee. The stamped bare trust deed will ensure there is no stamp duty on this transfer (the purpose of having this in place) – for Victoria. Depending on the State, concessional duty on transfer may be applicable e.g. NSW.

What is better for the bare trust? Having the same corporate trustee of the SMSF or a different one?

It will need to be a different trustee. The SMSF Trustee and Bare Trustee cannot be the same. If using a bank as the lender you will likely need this to be a corporate trustee.

Any questions?

If you have any questions, please contact us on 03 9886 0800 or via email.

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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2023. Please do not reproduce without the expressed written consent of the author.