Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 336

How to sell business real property into an SMSF

From 1 July 2018, a new law provides that in certain circumstances, the outstanding amount of a Limited Recourse Borrowing Arrangement (LRBA) will count towards the relevant member’s Total Superannuation Balance (TSB).

How will these new provisions affect the plans of SMSF members who could otherwise have benefitted from putting their business real property into their super fund?

Impact on future contributions

Let’s consider an example of Bruce and his plan to sell/transfer his property to his SMSF:

  • Bruce and his wife Linda have an SMSF of which they are the only members and trustees.
  • Bruce is 65 and Linda is 60 and in full time employment.
  • Bruce solely owns a commercial property in NSW worth $2 million and wants to sell this property to the SMSF.
  • Bruce and Linda have recently reviewed and revised the investment strategy of their SMSF.
  • Bruce and Linda have approximately $1 million and $500,000 respectively of liquid assets in their SMSF available to spend on this property purchase.
  • To fund the shortfall for the purchase price the SMSF will borrow using an LRBA.

Assuming the property is a ‘business real property’ in NSW, the SMSF’s purchase from Bruce may be eligible for stamp duty concession, meaning a potential saving of up to $94,800 on stamp duty. One of the requirements for this concession is that the purchase is financed by only Bruce’s interest in the SMSF and an LRBA (i.e. Linda’s interest of $500,000 cannot be used towards the purchase).

If the SMSF uses Bruce’s interest of $1 million, and borrows under an LRBA a further $1 million to finance the purchase, any outstanding LRBA loan amount as at the next 30 June (i.e. 30 June 2020) will count towards Bruce’s total superannuation balance as he has reached the age of 65.

It would also have applied if Bruce had not reached 65 but had borrowed from a related party.

Once added to Bruce’s TSB, it will affect his eligibility in the following financial year (i.e. FY2020/21) for carry forward concessional contributions, non-concessional contributions cap and bring forward of the non-concessional contribution caps, spouse tax offset, and segregated asset method to calculate exempt current pension income.

Not the death of the strategy

Is the strategy of selling your business real estate into your SMSF effectively dead? Not quite.

Let’s now consider a different scenario where the SMSF’s purchase is structured into two separate transactions of:

  • purchase by SMSF of the first 50% of the property to be segregated in the SMSF for sole benefit of Bruce (first purchase); and
  • purchase by the SMSF of the other 50% of the property to be segregated in the SMSF for sole benefit of Linda (second purchase).

The first purchase will:

  • only use Bruce’s balance (approx. $1 million)
  • be segregated in the fund for sole benefit of Bruce
  • be eligible for stamp duty concession (subject to other conditions being satisfied for the concession of course)
  • be transferred to the Fund Trustee(s)
  • be without any use of LRBA, thereby not affecting Bruce’s TSB.

The second purchase will:

  • only use Linda’s balance (approx. $500,000) and an LRBA loan
  • be segregated in the fund for sole benefit of Linda
  • not be eligible for stamp duty concession (full stamp duty on this 50% will be payable)
  • be transferred to a bare trustee/holding trustee for the SMSF (LRBA)
  • will not affect Bruce’s TSB as this 50% secured under the LRBA doesn’t support his superannuation interest (it is segregated for the sole benefit of Linda)
  • will not affect Linda’s TSB as she hasn’t satisfied the condition of release (i.e. has not obtained the age of 65 and is still employed)

The above example is used for the purpose of demonstrating potential implications of the new laws relating to LRBAs counting towards members’ TSB.

If you are considering a similar transaction, actual implementation would be complex and require legal, financial and tax advice as well as negotiation with the lender.

 

Jeff Song is Senior Solicitor, Division Leader Superannuation Online Services at Townsends Business & Corporate Lawyers. This article is based on an understanding of the legislation at the time of publication and individuals should seek their own financial and legal advice. 

 


 

Leave a Comment:

RELATED ARTICLES

Minister Jane Hume on SMSFs and superannuation reform

Importance of updating your SMSF Trust Deed

Property excitement, a Saturday auction and an SMSF

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Latest Updates

Economy

The ‘priced out generation’ and what they should do about it

A fiery interview on housing exposed deep generational divides, sparking youth outrage and political backlash. As homeownership drifts out of reach, young Australians face a choice: fight the system - or redefine success.

Taxation

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

Superannuation

Meg on SMSFs: Ageing and its financial challenges

Ageing SMSF members can face issues funding their pension income as cash reserves dwindle. Potential solutions include involving adult children in contributions to secure future financial stability.

Economy

US earnings season was almost too good to be true

The second quarter US earnings season has wrapped up, with a record 82% of S&P 500 firms beating earnings estimates. As tailwinds fade, Q3 may reveal whether AI momentum can offset rising economic headwinds. 

Gold

Does gold still deserve a place in a diversified portfolio?

9,000 years and no devaluations later, gold is the world’s most enduring store of value. It remains attractive as the value of several paper currencies, including the US dollar, are threatened by deficits and rising debt.

Shares

Checking in on the equity market's silent engine

Consumer spending directly impacts corporate earnings, sector performance and market sentiment. The latest data from different economies uncover risks and pockets of opportunity for investors.

Fixed interest

6 key themes driving bond markets

The Fed could soon be prompted to join other central banks in cutting interest rates. This would have ripple effects across global fixed income markets and provide an especially attractive backdrop for emerging market bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.