Can my parents rent a property from my super fund?

Parents Renting Property

The quick answer is no.  There are a number of reasons why you would not want to do this.

The first one is that these sort of arrangements are often done to help family members so the rent charged can be quite low as a result.  This is the first area you are going to run into problems.  A superfund is not allowed to provide financial assistance to a member or one of their relatives.  If this rent is below market rate there will be a case of financial assistance to a relative of the member.  This would be a contravention of the SIS Act.  That’s only the start of it though.

The next problem we have is the issue of ‘in house assets’.  There is a requirement that a superfund can have a maximum of 5% of its assets held in ‘in house assets’.  The definition of in house assets in layman’s terms will relate to ownership or usage by related parties.  If property held by the fund is rented to a related party it makes the property become an ‘in house asset’ and in most Self Managed Super Funds this would cause the 5% requirement to be breeched.  Also, it becomes so defined, it will remain so for the entire period of ownership of the asset.  The Trustees are then obligated to bring the ‘in house asset’ category down to 5% of fund assets.  To do so they could put more into the fund to raise the total of all fund assets, but with restrictions on contributions this is probably not going to be possible.  It may be that the only solution is to sell the property so as to comply.  This in itself could cause issues, like a capital gain resulting, or the time it may take to find a buyer.

The consequences of contravening the legislation are rather serious.  The worst of these is the fund could lose it status as a complying fund.  Complying Superfunds are taxed on their earnings at 15% , but non complying funds are taxed at the maximum rate for individuals – 45%.  Furthermore, on becoming non-complying the fund is also taxed at this rate on all its assets, so the consequences could be devastating.  The ATO also has the option of fining the Trustees personally and these fines are substantial.

So, renting a property owned by your fund to parents, or even other close relatives is NOT a good idea.

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