Can an SMSF Buy Property from a Member?
One of the most common questions self-managed super fund trustees ask is: Can an SMSF buy property from one of its members?
The answer is yes—but only in very specific circumstances. Strict superannuation rules govern transactions between an SMSF and its members, and getting them wrong can result in significant compliance issues.
The General Rule
Under the Superannuation Industry (Supervision) Act (SIS Act), an SMSF is generally prohibited from acquiring assets from a member or a related party.
This rule exists to prevent trustees from using their super fund for personal benefit or transferring personal assets into superannuation inappropriately.
However, there are important exceptions.
The Business Real Property Exception
An SMSF can purchase business real property from a member or a related party, provided certain conditions are met.
Business real property generally refers to land or buildings used wholly and exclusively in one or more businesses. Examples may include:
Commercial offices
Warehouses
Factories
Farms used in a primary production business
A common example is a business owner selling their commercial premises to their SMSF before leasing the property back to their business at market rates.
What About Residential Property?
In most cases, no.
An SMSF generally cannot purchase residential property from a member or a related party, even if the sale is conducted at market value.
Similarly, residential property owned by an SMSF cannot be lived in by members or their relatives, nor can it be rented to them. These restrictions are designed to ensure the fund's investments are maintained solely for providing retirement benefits.
Market Value Is Essential
Where an SMSF is permitted to acquire property from a member, the transaction must occur at market value.
Trustees should obtain an independent valuation or other objective evidence to support the purchase price. Proper documentation helps demonstrate that the transaction was conducted on commercial terms and supports compliance during the annual SMSF audit.
What Your Auditor Will Review
When auditing an SMSF that has acquired property from a member, your auditor will typically examine:
Whether the property was eligible to be acquired by the SMSF.
Evidence supporting the market value of the property.
Sale contracts and settlement documentation.
Whether the transaction complied with the fund's investment strategy and superannuation legislation.
So while an SMSF can purchase certain types of property from a member, the rules are strict. Business real property may qualify, but residential property generally does not.
If you're considering selling property to your SMSF, it's important to seek professional advice before proceeding. Understanding the rules early can help avoid costly compliance breaches and ensure the transaction stands up to audit scrutiny.
If you have any questions about purchasing or selling property in your SMSF, our team of specialists are only a phone call away.