SMSF borrowing and property development

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Rooky, 14th Jun, 2020.

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  1. Rooky

    Rooky Well-Known Member

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    Hi All,

    Can a person lend money(or partner/JV) to his own SMSF for property development? For e.g. person A has 700K in his personal bank account. Person A also has his SMSF which has 300K balance. Can person A's SMSF either borrow from person A or enter into some sort of JV with person A ? At the end of development person A either gets his money along with market interest back or his share of investment plus JV profit back. Is this allowed?

    Idea is to shift profit to entity which pays lowest amount of tax. Is it legal ?
     
    Rooky, 14th Jun, 2020
    #1
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    no
    a SMSF cannot borrow for anything other than the acquisition of a property
     
    Terry_w, 14th Jun, 2020
    #2
  3. geoffw

    geoffw Moderator Staff Member

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    geoffw, 14th Jun, 2020
    #3
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  4. Rooky

    Rooky Well-Known Member

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    Rooky, 14th Jun, 2020
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  5. Superman__

    Superman__ Well-Known Member

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    The ATO recently released a detailed bulletin on SMSFs and property development:
    Legal Database

    The above link specifically addresses your original question - i.e. any set up which disproportionately moves property development profits into a low taxed SMSF is explicitly not allowable.

    It is possible to have an SMSF jointly invest - but that works better when it's a passive joint ownership scenario rather than a development scenario.

    The other comments and links etc from @geoffw and @Terry_w also useful.

    Graham Colley from AMP has also put together some great information on this topic:
    There are probably other legitimate ways that may be available to structure a development where you can save some tax - i.e. through the use of deductible contributions.

    Of course seek appropriately qualified legal and tax advice.

    All the best.

    SM
     
    Superman__, 23rd Jun, 2020
    #5
    geoffw likes this.