All Topics / Legal & Accounting / SMSF Co-owner use

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  • Profile photo of misguided_willmisguided_will
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    @misguided_will
    Join Date: 2008
    Post Count: 4

    Hi there

    I’m considering purchasing a dual key apartment or house with a granny flat with my SMSF (50%) and a co-owner/relative (50%).

    I know for a 100% SMSF property, relatives are unable to benefit/rent the property.

    But as a co-owner, would they be entitled to use their half of the property which they own?

    Thanks

    richard

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    perhaps if the ownership is partitioned, but you would need good legal advice on this.

    The property couldn’t be mortgaged.

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    Profile photo of misguided_willmisguided_will
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    @misguided_will
    Join Date: 2008
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    thanks terry

    re “the property couldnt be mortgaged”, i was planning to use my smsf balance of $150k to get a loan to pay the smsf’s 50% share, meanwhile the co-owner/related party would arrange their own financing to pay for their 50% share.

    To clarify, do you mean that the co-owner/related party can’t have their loan secured against their 50% ownership in the residential investment property?

    Profile photo of RedwoodRedwood
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    @redwood
    Join Date: 2013
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    Richard – I would not bother with such an arrangement, if you are borrowing, this will need to be on one title, and otherwise your smsf auditor will questions –

    Cheers Ivan

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    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Strictly speaking one tenant in common could mortgage their share of the property and the SMSF share be unencumbered and this could meet SIS Act rules. But you wouldn’t find a lender out there willing to lend on this basis.

    Another way to do it would be for your friend to borrow against other property.

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    Profile photo of misguided_willmisguided_will
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    @misguided_will
    Join Date: 2008
    Post Count: 4

    Hi Terry,

    Thanks for the suggestion. I think the co-owner should be able to borrow enough against their existing properties to fund their 50% share.

    Regarding co-owner use (actually a relative), assuming the house has self-contained quarters such as a granny flat OR is a dual key apartment, do you think their usage would comply with the SMSF rules? Who would I contact to get a definitive answer? The ATO? Thanks again….

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    You need to seek legal advice on this. Speak to a SMSF lawyer

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    Profile photo of gshaheengshaheen
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    @gshaheen
    Join Date: 2016
    Post Count: 5

    Hi Richard,

    I do a lot of loans for SMSFs in Victoria.

    While I haven’t come across your exact circumstance before (residential property with personal use aspect), you may wish to explore the possibility of a Unit Trust owning the property.

    Units in the Unit Trust could potentially be owned by your SMSF with remaining Units held in either your name personally or perhaps some other company / trust.

    Please don’t take this as advice… Just an idea.

    George S

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
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    George using Units in a Unit Trust or not does not get you around SISA.

    You cannot mortgage the property as Terry has indicated above.

    Misguided, definitely do not take that post as advice as it is incorrect advice.

    Cheers

    Yours in Finance

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    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
    Post Count: 2,539

    I’m going to say it. I think this property is a bad idea for a SMSF. A big part of the value of acquiring property is the power of leverage (borrowing). If you cannot borrow and have to pay extra for specialist legal advice about the complexity of a property that is still only going to give you normal residential returns, then what is the point?

    That’s my opinion…

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    Profile photo of gshaheengshaheen
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    @gshaheen
    Join Date: 2016
    Post Count: 5

    I’m going to say it. I think this property is a bad idea for a SMSF. A big part of the value of acquiring property is the power of leverage (borrowing). If you cannot borrow and have to pay extra for specialist legal advice about the complexity of a property that is still only going to give you normal residential returns, then what is the point?
    That’s my opinion…

    I tend to agree with you Jacqui. Seems overly complicated and I can’t image this being in line with the strategy of an SMSF. Always keep in mind that your SMSF represents your life savings.

    George using Units in a Unit Trust or not does not get you around SISA.

    Richard – Nothing gets you around the SIS Act when purchasing in an SMSF. I’m simply sharing some structures that I have seen before when clients did not actually wish to purchase within their SMSF.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    A deed of partition could possibly be entered into so that each party beneficially owns just the part of the property that they take possession of. Tricky though

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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