Self-Managed Superannuation Funds (SMSFs) are becoming an increasingly popular choice for Australians who want greater control over their retirement savings. SMSFs offer a range of investment options, including the ability to purchase property. In fact, some SMSFs invest in agricultural land, which can provide attractive returns and diversification benefits. However, investing in a farm through an SMSF involves complying with specific rules and regulations to ensure compliance with superannuation laws.
One option for SMSFs is to buy a farm and lease it to a related party. This may be a family member or someone with a close personal or business relationship to the SMSF members. However, there are certain requirements that must be met to ensure that the arrangement is compliant with superannuation laws.
The purchase of a farm by an SMSF must comply with the fund’s investment strategy and trust deed. The investment must be in line with the fund’s investment objectives and risk profile, and the purchase price must be at market value. The SMSF must also ensure that the farm investment does not breach the fund’s asset allocation limits or result in a breach of the sole purpose test, which requires the fund to be maintained solely for the purpose of providing retirement benefits to its members.
Once the SMSF has purchased the farm, it can lease it to a related party. However, the lease agreement must also comply with superannuation laws. The lease terms, including rent and other conditions, must be at market value and similar to what would be agreed upon between unrelated parties. This ensures that the arrangement is conducted at arm’s length and prevents SMSF members from receiving benefits that they would not have received if the transaction was conducted on commercial terms.
To ensure compliance, the SMSF must document the lease agreement in writing and keep accurate records of all transactions related to the investment, including rental income and expenses. This documentation is critical in case the ATO conducts an audit or if the SMSF members need to demonstrate that they have complied with superannuation laws.
It is important to note that if an area of the real property not exceeding 2 hectares contains a dwelling used primarily for domestic or private purposes, and if the area is also used primarily for domestic or private purposes, then the related party can live on the farm. This provision allows for family members to live on the property while still complying with superannuation laws.
Investing in a farm through an SMSF can provide attractive returns and diversification benefits, but it is essential to comply with superannuation laws. To ensure compliance, it is important to seek professional advice from a qualified SMSF auditor, accountant, or financial adviser. These professionals can help SMSF members understand the legal and compliance requirements and develop a plan to invest in agricultural land that meets their investment objectives and risk profile while still complying with superannuation laws. At icare Super, we have a team of professionals who can help SMSF members navigate the complexities of investing in property through their SMSF. Contact us to learn how we can help with your SMSF investment strategy.