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

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

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.