SMSFs can invest with a related party entity to acquire the desired assets.
- as tenants in common with a related party. This method is very common to buy residential or commercial properties.
- using a unit trust.
There are three areas that needs to be considered when an SMSF transacts with related parties:
- The assets are owned by a related party before the acquisition. Please note if the assets to be acquired is form a related party, S.66 of SIS Act must be met. The allowable assets are listed securities, business real properties, widely held unit trust etc.
- Non-arm’s length income (special income) provisions. Transacting on terms that are not commercial can result in the non-arm’s length (special income) provisions of s273 of the ITAA(1936) AND s295-550 of the ITAA (1977) being applied.
- Agreements to circumvent the in-house assets test. S.85 of the SIS Act prohibits an SMSF from entering into any scheme to avoid the application of the in-house assets rules.
When you invest with a related party, please consult with us to ensure your SMSF will not beach s.62 sole purpose test, s.66 acquiring assets from related party rules and s.85 as mentioned as above.