For members and trustees wondering who can use a property the fund owns, and what happens if the rules are broken.
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In practice, no. A residential property owned by your SMSF can't be lived in, holidayed in or rented by members or their relatives. The ATO treats that as a breach of the sole purpose test, and a lease to a relative makes the property an in-house asset, capped at 5% of the fund. Business real property is the exception.
An SMSF must be maintained solely to provide retirement benefits to its members, or benefits to their dependants if they die (Superannuation Industry (Supervision) Act 1993, section 62). Using the fund's property now is a benefit before retirement. The ATO gives two examples that fit exactly: holidaying in the fund's investment property, and a fund buying a rental property so that a related party can live in it.
Market rent doesn't fix it. A fund asset leased to a related party is an in-house asset, and in-house assets can't be more than 5% of the market value of the fund's total assets. For almost every fund, one property is well over 5%. If the limit is exceeded at the end of a financial year, the trustees must prepare a written plan to get back under 5% before the end of the next year, and carry it out. The ATO's view on buying a rental for a relative to live in also still applies. Related parties include your relatives, your business partners and companies or trusts you control, so renting through a family company doesn't help.
A fund can own a holiday property as an investment and rent it to unrelated people at market rates. Members and relatives can't stay there, even when it would otherwise be empty, and it can't double as the family holiday house.
Not while the fund owns it. Once you meet a condition of release such as retirement, the fund can sell the property to you or transfer it to you as a benefit, and from then it is yours to use. That transfer is a change of ownership: duty and tax apply in the usual way. In New South Wales, for example, full transfer duty generally applies when a member acquires property from their fund. Plan it with your accountant and adviser.
Business real property, meaning land and buildings used wholly and exclusively in a business, can be leased to a related party. It isn't counted as an in-house asset as long as it stays business real property throughout the lease and the lease is legally enforceable (section 71(1)(g)). That is how many business owners hold their premises in super. The lease should be written, at market rent, and the rent actually paid: see How to buy an SMSF property to rent to your business. A home or flat on the property used privately can stop it being business real property.
The ATO can impose penalties, make the fund non-complying (which removes its tax concessions), disqualify trustees, and in serious cases prosecute. If a member or relative is already using a fund property, get advice promptly: the problem continues for as long as the arrangement does. For how residential property can be held properly, see Can my SMSF buy property?
Tell us how the property is being used. We'll explain the options and quote a fixed fee for the work.