Many Australians consider investing in property through a Self-Managed Super Fund (SMSF) as a part of their retirement planning. It’s a strategy that can offer control over your retirement savings and potential tax benefits.
As the years progress, however, a common question arises: “Can I live on my SMSF property when I retire?” It’s a logical conclusion after all the benefits it may have brought you.
In this article, our experts at Aspire2 Wealth will break down what you need to know about this situation, including the rules, options, and things to watch out for when considering living in your SMSF property post-retirement.
What You Need to Know About SMSF Property Investment
Investing in property with your SMSF is an appealing option for many. It gives you direct control over your retirement assets and can potentially lead to significant returns. Just know that if this is the road you decide to walk down, there are some strict rules in place relating to how you can use this property.
The Sole Purpose Rule
Perhaps the most important rule of an SMSF property investment is the sole purpose rule. Under this ruling, you should maintain your SMSF solely to provide retirement benefits to its members. What this means in practice is that you cannot use the SMSF property for personal use while you are still in the accumulation phase.
Is There a Penalty For Living in an SMSF Property?
If you or a related party were to live on the property before you retire, you could face penalties. These penalties might include fines, loss of your SMSF’s concessional tax treatment, or even disqualification as a trustee.
How Ultimately to Live in Your SMSF Property
While the sole purpose rule might seem to block you from enjoying your SMSF property as a resident, don’t fret; the rules change a bit once you retire.
While you still can’t live in the property while the SMSF owns it, there are ways to legally transfer it into your name, allowing you to move in.
Let’s explore some of these options before you:
Buying the Property from Your SMSF
A popular option if you want to live in your SMSF property after retirement is to purchase the property from your SMSF. Don’t forget that you and your SMSF are separate entities, so all you need to pay the SMSF itself is the property’s market value, effectively swapping the asset for cash in your fund. Doing so allows you to live on the property but requires careful financial planning. You might inadvertently be hit with taxes, fees or administrative distress without the right care.
In-Specie Transfer
Another method is an in-specie transfer, which involves transferring the property directly from the SMSF to you as a member. Unfortunately, not everyone will find this a viable option, as it is only available if your SMSF Trust Deed permits it and is usually considered after you’ve met a condition of release, like reaching your preservation age and retiring.
Once the transfer is completed, the property is yours, and you can live in it without any SMSF-related issues.
Considerations to Keep in Mind:
- Stamp Duty Costs: Depending on your state or territory, you might have to pay stamp duty when the property is transferred, even through an in-specie transfer. This is an important cost to consider in your retirement planning.
- Capital Gains Tax (CGT): If the property was used to support a pension, CGT might not apply. However, this can vary, so it’s best to get professional tax advice.
Steps to Take Before Moving Into Your SMSF Property Investment
If you’re planning to live in your SMSF property after retirement, here are some steps to ensure everything goes smoothly:
- Speak to a Financial Advisor: Before making any decisions, it’s wise to talk to a financial advisor who can help you understand the economic and legal implications.
- Get a Property Valuation: You’ll need a current market valuation of the property, whether you’re buying it from the SMSF or doing an in-specie transfer.
- Review Your SMSF Trust Deed: Make sure your Trust Deed allows for an in-specie transfer. If it doesn’t, you may need to update the deed.
- Understand the Tax Implications: To avoid surprises, get advice on potential tax consequences, including CGT and stamp duty.
- Execute the Transfer: Once you have completed all these steps, you can proceed with the transfer by purchase or in-specie.
Other Factors to Consider When You Decide to Live in Your SMSF Property
You should know a few additional considerations when planning to live in your SMSF property after retirement.
Age Pension Impacts
If you’re eligible for the Age Pension, living in a property that was part of your SMSF could affect your pension payments. The property’s value might be counted in the assets test, potentially reducing the amount you receive.
Downsizer Contributions
If you sell your main home and use the proceeds to buy your SMSF property, you might be able to make a downsizer contribution to your super. As of 2023, this contribution can be up to $300,000, but you’ll need to meet specific criteria.
Explore More on Managing Your SMSF & Financial Assets with Aspire2 Wealth
Living in your SMSF property after you retire is possible, but it requires careful planning and adherence to the rules. Whether you buy the property from your SMSF or do an in-specie transfer, understanding the rules and getting professional advice will help you make the right decision for your situation.
If you need more information on how to live in your SMSF property or have questions about SMSF property investment, don’t hesitate to reach out to Aspire2 Wealth Advisers today. We’re here to help you navigate the complexities of SMSFs and plan for a comfortable retirement.
This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.
