Smsf holiday rental properties

if I was to buy a holiday rental place for my smsf it is full managed
Am I allowed to book via the management company and pay full market rate if I want it stay there? So no freebie

I know it has to be arm length but surely if I book and pay the same rate as any body else am I allow to stay there?

 

No you are not.

 

But Mrs & Mrs Smith might've stayed there.

 

No.

And not worth jeopardising your SMSF’s compliance by trying to get around regulations. The sole purpose of your SMSF is to provide for your retirement, not holidays. There may be better investment options elsewhere.

Stay somewhere else.
Marg

 

In some cases as long as it is incidental it is allowed. But the rules are strict

if the use and enjoyment of the asset does not contravene the sole purpose test, trustees must still ensure that the total market value of the SMSF's in-house assets does not exceed 5% of the market value of the SMSF's total assets.

Refer to SMSFR 2008/2

Legal Database

Example 4 - benefit to related party at market value: merely an incidental benefit

37. In line with the SMSF's investment strategy, the trustees of the SMSF invest in residential units across Australia. The units are let through an agency, which manages the maintenance of the units and lets the units at normal commercial rates. These units are let for both long and short term stays subject to market demand.

38. A trustee of the SMSF regularly travels in relation to her employment. If a unit owned by the SMSF is unoccupied at a destination to which the member travels, the member stays in the unit and pays the normal commercial rates.

39. There is no evidence to suggest that the location of the investments is influenced by the travel plans of the member. As the letting of the units is managed by an agent, it is also clear that the vacancy of the unit is not influenced by the member's travel itinerary.

40. These facts of themselves do not indicate that the sole purpose test has been breached in these circumstances. In particular, the SMSF is not subject to any financial detriment. There is also no evidence to suggest that the benefit (short-term accommodation when travelling) was sought through the choice of investments made by the trustees of the SMSF. The benefit is relatively insignificant, and is provided for at market value to the particular SMSF trustee

 

Quite easy to detect this during an audit.

ATO asks for the managing agents summary of people who stayed in the property.

Gaps will be questioned and questions asked why or if you used a fake name next level they can check is to match your bank transactions, maybe you filled up with petrol on the way and that is on the statement, used your credit card at the local convenience store, one small mistake and they deem it a non complying fund and you just lost half the value of the assets worse you now have a non complying fund and need to sell the asset and banks after any shortfall

Its seriously not worth it.

 

Scott you wouldnt want mr and mrs smith there anyway. The place would be full of bullet holes and trashed at the end of their stay.

 

They don't use credit/debit cards. Cash only.

 

No I don’t want to go down mr and mrs Smith I prefer to play by the rules -

I reckon the rule is too strict as long as you paid commercial rate equal to any joe blow why is it
Affect my investment return nor does it effect my smsf purpose of generating income for retirement?

It is no different from me booking an accommodation else where and paid similar money for it

 

I actually agree with you. To me it is no different to a commercial property leased to a related party business.

In fact commercial is inherently more risky. Makes no sense.

But many things in life dont make sense but alas it is the way it is.

 

Then they will find it very hard, if not impossible, to book accommodation anywhere.
Marg

 

Unfortunately not, you will be breaching a number of rules under the SIS Act and saving in a little bit of coin over the holiday period will result in disaster. The ATO and auditors should be all over it.

Cheers Ivan

 

Why would you want to say in the SMSF property anyway? Wouldn't staying in the one next door be the same?

 

Why is it so important for you to stay there?
Marg

 

It not so much I desperately want to stay there it
Just an option so I can deck out stuff I want to use and I don’t mind tenants use them while we not there.

Rule too strick I will use personal cash instead -

 

This is why these laws were implemented. The sole purpose of superannuation is to provide for retirement.

 

The question poses the problem all SMSF Trustees must consider - Why am I investing ? The very question being asked suggests misuse is being sought.

The use of the SMSF property should never be for members, relatives or any third parties by arrangment. Once that is understood the sole and exclusive use of the fund assets is for the members future retirement.

There is an anti avoidance rule and serious penalties for SMSF non-compliance. Auditors who suspect misuse can report it - They need not have proof. The other concern that makes it very easy to detect is improvements, repairs etc made by the trustees. They are unable to use it even in that instance. All such acquisitions and improvements should be arms length and not be free of labour without auditor agreement to be safe.

The sole exception for property is commercial real property where a lease like arrangement is in place. Holidays lets fail that test.