Can I Sell an SMSF Property to My Child? Rules & Risks Explained

Can an SMSF Sell Property to a Family Member?

The short answer is yes, but with strict conditions. The Australian Taxation Office (ATO) prohibits SMSFs from acquiring assets from related parties unless an exception applies. Similarly, selling an SMSF property to a related party (including children) is only allowed if:

1. The Property is Business Real Estate (BRE) – The property must be used wholly and exclusively in a business and sold at market value.
2. The Transaction is at Arm’s Length – The sale must be conducted as if the buyer and seller are unrelated, with an independent valuation.
3. The SMSF is Not Providing Financial Assistance – The fund cannot lend money or provide benefits to members or relatives.

Key Rules When Selling SMSF Property to a Child

1. The Property Must Be Business Real Estate (BRE)

• The property must be used entirely for business purposes (e.g., a commercial office, warehouse, or shop).
• It cannot be a residential property leased to a family member (including your child) unless they run a business from it.

2. The Sale Must Be at Market Value

• An independent valuation from a certified property valuer is required.
• The sale price must align with current market rates—no discounts or special deals for family members.

3. The Transaction Must Be Arm’s Length

• The sale should follow standard commercial processes (e.g., real estate agent involvement, formal contracts).
• No special payment terms or vendor financing can be offered by the SMSF.

4. The SMSF Must Not Provide Financial Assistance

• The fund cannot lend money to the buyer (your child) to purchase the property.
• The child must secure their own financing (e.g., bank loan).

Risks of Selling SMSF Property to a Child

1. ATO Compliance Breaches

If the ATO determines the sale was not at arm’s length or was below market value, the SMSF could:

• Lose its complying status, leading to higher taxes (up to 45%).
• Face penalties for trustees.

2. Superannuation Law Violations

• SMSFs are prohibited from providing financial benefits to members or relatives before retirement.
• If the transaction is seen as an early release of super, severe penalties apply.

3. Capital Gains Tax (CGT) Implications

• If the property was purchased before September 1985, CGT may apply.
• If the SMSF is in accumulation phase, CGT is 15%; if in pension phase, it may be 0%.

4. Liquidity Issues

• If the SMSF needs to pay out member benefits but the property sale funds are tied up, liquidity problems may arise.

How an SMSF Accountant & Auditor Can Help

To ensure compliance, it’s essential to work with professionals:

1. SMSF Accountant

• Provides tax advice on CGT and stamp duty implications.
• Ensures the transaction is structured correctly to meet ATO rules.
• Helps with SMSF property loan compliance if refinancing is involved.

2. SMSF Auditor

• Reviews the transaction to confirm it meets superannuation laws.
• Checks that the property valuation is independent and market-based.
• Ensures no conflict of interest exists between trustees and buyers.

3. SMSF Property Specialist

• Advises on alternative strategies, such as leasing instead of selling.
• Helps with SMSF property loans if the fund needs to acquire a new asset.

Alternatives to Selling SMSF Property to a Child

If selling to a child is too risky, consider:

1. Leasing the Property to Their Business

• If your child runs a business, the SMSF can lease the property to them at market rates.

2. Selling to an Unrelated Party

• A straightforward sale to a third party avoids compliance risks.

3. Transferring Ownership via Inheritance

• The property can be passed on after retirement via a superannuation death benefit.

Final Thoughts: Seek Professional SMSF Advice

Selling an SMSF property to a child is possible but comes with strict conditions. Violating SMSF rules can lead to heavy penalties, so consulting an SMSF accountant, auditor, or property specialist is crucial.

Need Help with Your SMSF Property?

If you’re considering selling an SMSF property to a family member, get expert advice to stay compliant. Contact our SMSF specialists today for a consultation.