SMSF property investment regulations to keep in mind

Property is a common investment option for SMSFs, however, the ATO has a number of regulations SMSF owners need to be wary of. The ATO is particularly concerned with those using SMSF assets to invest in property in a way that is detrimental to retirement purposes.

To ensure you do not breach provisions of the Superannuation Industry (Supervision) Act 1993 (SISA), here is a breakdown of the ATO’s common regulatory concerns:

• Whether arrangement amounts to your SMSF are being made to purposes outside of the sole purpose test (referred to as a collateral purpose).
• Whether your SMSF meets operating standards such as record-keeping, ensuring assets are appropriately valued and recorded at market price, and keeping SMSF assets separate from members’ assets.
• Whether the arrangement includes the SMSF acquiring assets from a related party.
• If the arrangement features the SMSF borrowing money and meets borrowing provisions.
• Whether the SMSF has contravened the in-house assets by exceeding the level of in-house assets allowed.
• Cases of illegal early release of superannuation when SMSF arrangements do not meet relevant payment standards.

Also keep in mind that you cannot improve a property or change the nature of a property while there is a loan in place. While you can look to make additional contributions to your SMSF to speed up the loan repayment process, you will be precluded from making further contributions to your SMSF if any outstanding loans in your super balance exceed $1.6 million.

In the case that any of the ATO’s regulatory concerns apply to you and your SMSF’s involvement with property investment, confirm your situation and report your circumstances to the ATO. Additional regulatory matters regarding income tax such as non-arm’s length income (NALI) provisions as well as GST need to be reported as well.