There is a common misconception that self-managed
superannuation funds (SMSFs) cannot engage in property development.
However there are no provisions in the Superannuation Industry
(Supervision) Act 1993 (Cth) (SIS Act), the Superannuation
Industry (Supervision) Regulations 1994 (Cth) (SIS
Regulations), the Income Tax Assessment Act 1997 (Cth)
(ITAA97) or the Income Tax Assessment Act 1936 (Cth)
(ITAA36) that expressly prohibit SMSFs from engaging in property
While the SIS Act and SIS Regulations do not prohibit property
development, there are certain obligations under the SIS Act and
SIS Regulations that can be breached by the activities involved in
property development. However, with the right advice and structure,
the risks of breaching the SIS Act or SIS Regulations when
developing a property can be eliminated. Some of the different ways
in which SMSFs can engage in property development are:
DIRECT INVESTMENT IN PROPERTY DEVELOPMENT
SMSFs can invest in property directly through the purchase of
land and buildings or structures. The major advantage of direct
investment is that those assets can be developed and the resulting
income and capital growth will be taxed at low SMSF rates. A key
restriction however is that SMSFs are not allowed to borrow for
funding property developments through direct investment.
INDIRECT INVESTMENT IN PROPERTY DEVELOPMENT THROUGH UNIT
SMSFs can also invest in property indirectly through related and
unrelated unit trusts. These different structures can enable a SMSF
to engage in property development and property development
activities without breaching the SIS Act or the SIS Regulations.
These structures are flexible and allow SMSFs to engage in property
development jointly with other entities (including other SMSFs) and
may also allow for the property development activities to be funded
using borrowed funds. These structures can also provide asset
protection for your SMSF.
WHAT SHOULD YOU DO IF YOU LOCATE A DEVELOPMENT SITE AND WANT TO
USE YOUR SMSF IN THE PROJECT?
The structure most suitable for your SMSF will depend on a
variety of factors. To discuss how your SMSF can engage in property
development and the best way for it to do so please contact your
local Hunt & Hunt property contact.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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