Transferring $2M Into Your SMSF
Editor
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In our article, Transferring $2M Into Your SMSF, we explained why we are not big fans of borrowing to buy residential property inside a self-managed super fund (SMSF).
In this blog post, we explain one exception to this general point of view, that is partly a lifestyle decision and partly a strategic financial decision.
Although a SMSF cannot purchase a residential property from a member, there is nothing stopping it from selling a residential property TO a member at the fair market value of the property.
Selling the property is simply the sale of an asset and not a contribution or benefit to a member, and as such should not breach the Superannuation Industry Supervision (SIS) Act and regulations.
Given this, it could make sense to purchase two particular types of residential property in a SMSF, one is your future down-sized retirement principal place of residence (PPOR) and a future holiday house.
Let’s say you purchased a “future PPOR” for $650,000 and a “future holiday house” for $350,000, so a total purchase price of $1M (excluding stamp duty and purchase costs for simplicity), in your SMSF when you were 50 y/o and using cash funds available in your SMSF plus a limited recourse loan.
As these properties are in your SMSF, you absolutely cannot use them personally as doing this will breach the SIS Act – you can only rent them out to un-related parties as investment properties.
Now fast-forward another 10 years to when you are 60 y/o and let’s say the value of the future PPOR is now $1.3M and the future holiday house is now $700,000, so $2M in total.
When you are 60 y/o and your SMSF is in pension mode, you can then sell both the future PPOR and future holiday house to yourself as a member for $2M (after confirming the market valuation of both properties with an independent valuer), capital gains tax (CGT)-free (but note there will also be stamp duty payable in this transfer).
In doing this you have to transfer $2M cash that is outside your SMSF (assuming you actually have this cash available) into your SMSF.
In exchange for this you now have a new PPOR and holiday house that you can now live in and use for your retirement.
If you immediately move into the new PPOR after the sale, it will remain CGT-free.
Anyway, this is just food for thought and may be a strategy worth considering.
The main objective here is getting large amounts of funds outside your SMSF into your SMSF, and the reality is that most people struggle to make the maximum concessional and non-concessional contribution limits each year and as such this strategy would likely only benefit people who have (or are likely to have) a very large amount of net assets.
And at the end of it all you still need to decide what to do with the $2M cash now sitting inside your SMSF – but this is probably a good problem to have!
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