Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 381

Can your SMSF buy a retirement home for you now?

Can you buy your retirement home now in your SMSF and use it when you retire? It may be tempting but is it possible?

Let's look at Garry and Betty who are the directors of the corporate trustee of their SMSF.  They are contemplating acquiring a property through their SMSF, which they plan to lease to an unrelated third party at market value until both of them reach their preservation age and retire as a condition of release.

They want to know whether it is possible for them to reside in the property as their principal place of residence once both of them have reached this condition of release.

There are a few things that Garry and Betty will need to consider to ensure that the transaction complies with superannuation laws.

Issue 1: the sole purpose test

Is purchasing the property now with the intent to reside in it in the future once the members of the SMSF have met a condition of release a breach of the sole purpose test?

SMSF Ruling 2008/2 provides that an SMSF may only be maintained for the sole purpose of providing retirement benefits to the members, or to their dependants if a member dies before retirement. It also provides that in determining whether an SMSF has satisfied the ‘sole purpose’ test, one must consider all the facts and circumstances surrounding the trustee’s behaviour in relation to the acquisition of the property.

For example, if the trustee invests in a property where there is a significant likelihood that the investment in the property will not increase any return for the SMSF and the trustee simply purchased the property because the members always dreamed of retiring to a lovely coastal home, then the ATO may take a sceptical view and rule the transaction a breach of the sole purpose test.

If, on the other hand the trustee has supporting documentation such as valuation reports which shows that the investment property is likely to provide an increase in return for the SMSF, then the sole purpose test may be satisfied, notwithstanding the ancillary purpose.

Issue 2: the property remaining in the SMSF

An SMSF will fail to meet the ‘sole purpose’ test if the SMSF provides a pre-retirement benefit to a member of the SMSF.

If Garry and Betty decide to reside in the property once they have both met a condition of release, they should transfer the property from the SMSF to the members in their personal capacity.

This is to avoid potentially breaching the ‘sole purpose’ test in the event that Garry and Betty residing in the property is treated as a present-day benefit or personal use of an SMSF asset.

Issue 3: capital gains tax and land tax

As a general principle, there is no capital gains tax on a transfer of property between an SMSF and the members of an SMSF in their personal capacity if the property is solely supporting the payment of one or more pensions for the members (i.e. if the property is a segregated current pension asset under the segregation method or under the proportional method if all members interest are in pensions).

If an SMSF sells a property before the members retire, the SMSF is charged 10% capital gains tax.

If an SMSF property is sold whilst all members of the fund are solely in retirement phases, any capital loss realised would be disregarded for tax purposes and cannot be carried forward to offset future capital gains.

In most states and territories, a principal place of residence will not be subject to land tax. As the property will be Garry and Betty’s principal place of residence when acquired, they will not have to pay land tax.

Transfer duty on the transfer from the SMSF to Garry and Betty in their personal capacity will result in transfer duty or nominal duty being paid except in Victoria, the ACT, and Soth Australia where transfer duty on this type of transaction is exempt.

Full ad valorem (‘according to value’) transfer duty is likely to be charged in NSW, Queensland and the NT. In Western Australia, nominal transfer duty of $20 applies in respect of a transfer of, or an agreement for the transfer of, dutiable property from the trustee of an SMSF to a member of the SMSF.

The trustee must still ensure that the in-specie transfer is permitted under the trust deed. If the trust deed is silent on any in-specie transfer, then the trust deed will need to be updated to allow the in-specie transfer to occur.

In summary, while it may seem advantageous to acquire a retirement property through your SMSF with the hope of residing in the property once you retire, there are issues to consider with this type of transaction, particularly ensuring that the SMSF satisfies the sole purpose test. 

 

Elizabeth Wang is a Solicitor at Townsends Business & Corporate Lawyers. This article is for general information only as it does not consider the individual circumstances of any investor. Consult with a legal or financial adviser before acting on any information in this article.

 

RELATED ARTICLES

Meg on SMSFs: At last, movement on legacy pensions

Meg on SMSFs: Winding up SMSFs paying a pension requires care

Tips when taking large withdrawals from super

banner

Most viewed in recent weeks

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 606 with weekend update

The boss of Australia’s fourth largest super fund by assets, UniSuper’s John Pearce, says Trump has declared an economic war and he’ll be reducing his US stock exposure over time. Should you follow suit?

  • 10 April 2025

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Latest Updates

Investment strategies

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Investment strategies

Does dividend investing make sense?

Dividend investing offers steady income and behavioral benefits, but its effectiveness depends on goals, market conditions, and fundamentals - especially in retirement, where it may limit full use of savings.

Economics

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Strategy

Ageing in spurts

Fascinating initial studies suggest that while we age continuously in years, our bodies age, not at a uniform rate, but in spurts at around ages 44 and 60.

Interviews

Platinum's new international funds boss shifts gears

Portfolio Manager Ted Alexander outlines the changes that he's made to Platinum's International Fund portfolio since taking charge in March, while staying true to its contrarian, value-focused roots.

Investment strategies

Four ways to capitalise on a forgotten investing megatrend

The Trump administration has not killed the multi-decade investment opportunity in decarbonisation. These four industries in particular face a step-change in demand and could reward long-term investors.

Strategy

How the election polls got it so wrong

The recent federal election outcome has puzzled many, with Labor's significant win despite a modest primary vote share. Preference flows played a crucial role, highlighting the complexity of forecasting electoral results.

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.