Can I live in my SMSF property?

In this guide

Superannuation rules on the use of SMSF assets
Rare situations when it may be allowed
Moving the property out of the SMSF
Common questions about living in SMSF properties
The bottom line

Owning direct property has always been a popular investment choice for SMSFs. The ATO’s March 2024 statistics show that around 15% of all SMSF assets are held in direct property assets, including residential and non-residential property owned both in Australia and overseas.

With an increased interest in SMSF property ownership, a question that pops up quite often is if the SMSF members, or their family, can live in their SMSF-owned property.

In almost all cases, the answer would be no.

Superannuation rules on the use of SMSF assets

The personal use of SMSF assets is prohibited and there are quite severe penalties that can be imposed on the fund trustees where they allow this to take place.

The most obvious issue relates to the sole purpose test, which requires that all SMSF assets are purchased and held for the sole purpose of providing retirement benefits to the members of the fund.

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This requires the trustees of the fund to make decisions that are in the best ‘retirement interests’ of their members, not their current interests, or the interest of the fund’s related parties.

Allowing a member of the fund, or any of their relatives, to live in a property owned by their SMSF would be in breach of the sole purpose test.

Rare situations when it may be allowed

There are some extremely rare situations where an exception to these rules could apply that would allow related-party use of an SMSF property for residential purposes. These situations would include:

A hotel or motel business

Where the property is owned by the SMSF and a related party is actively managing the hotel or motel business and is required to always be available, so they live on site.

The related parties ‘residential use’ of the asset would be incidental to the business being carried on.

Primary production business

Where primary production land is owned by an SMSF and is used in a primary production business, there can be residential use of a house on that land so long as that area of the overall primary production land that is used for residential purposes is no more than two hectares (including the house and surrounds).

Again, the ‘residential use’ of the asset would need to be incidental to the business being carried on.

Read more about SMSFs and business real property.

Moving the property out of the SMSF

It is important to note that these investment rules and restrictions would only be relevant at times where the property is owned and held through the super fund.

If the property is transferred out of the fund by way of an in-specie benefit payment, or where the SMSF sells the property to a related party, then these restrictions would no longer be relevant.

It is not uncommon for an SMSF member to request an in-specie payment of their member benefits held in the fund by way of a transfer in the ownership of the property.

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Read more about in-specie transfers from an SMSF.

Once the transfer is complete and the property is owned personally by the member, then the property could be used for any purpose that the member wishes. Of course, the member would need to satisfy a condition of release that allows unrestricted access to their benefits for this to be allowed.

Common questions about living in SMSF properties

The short answer is no, not while the property remains an asset of the self-managed super fund.

There are two main rules that apply in these situations:

The sole purpose test: This requires that all activities carried out by the fund (trustees) are for the sole purpose of providing retirement benefits to the fund members; that the fund assets and resources should not be used to provide a pre-retirement benefit to the members of the fund, or their related parties.
The in-house assets test: This test applies a 5% limit on all in-house assets held in a SMSF. In-house assets include assets owned by a SMSF that are leased to a related party unless a specific exception applies.

Living in a property owned by your SMSF would be in breach of the sole purpose test and would in most all cases, exceed the in-house limits.

However, if the property is removed from the SMSF and therefore no longer an asset of the fund, you could then live in the property.

This could be achieved by either buying the property from the SMSF (at market value) or by transferring the property out of the fund as a member benefit payment at a time when you are allowed to access your super benefits, for instance when you are retired.

The same two issues that were covered in the previous question would apply here, being the sole purpose test and the in-house assets test.

There would be an issue with the sole purpose test.

Also, if you consider how the in-house assets test operates, it would be extremely rare for the 5% limit to be satisfied as the market value of the property needs to be used in the calculation of the in-house assets test limits.

For example, a property with a market value of $800,000 would only fit in with the 5% in-house assets limit where the total SMSF assets are above $16 million!

It is important to note that where the value of a fund’s in-house assets exceeds 5% at the end of the financial year, the fund trustees would be required to put in place a written plan to DISPOSE OF (sell) one or more of the fund’s in-house assets to get back below the 5% level.

Merely kicking the kids out of the property would not work, as the legislation requires the sale of an in-house asset.

So, renting an SMSF owned residential property to a related party could result in the need for the SMSF to sell the property the following financial year.

Again, the same issues covered in the first two questions would apply.

If no rent is paid, then there is a clear breach of the sole purpose test.

If market rate rent is paid, then you would in almost all cases breach the 5% in-house assets test. Remember it is the value of the property that is used in determining the 5% limits NOT the amount of the rent that is paid.

Again, keep in mind the rules around the compulsory sale of in-house assets in the following financial year where the 5% test is failed. Those few weeks on the Gold Coast could end up as an extremely expensive holiday!

The bottom line

If you own property through your SMSF, then make sure you adhere to the applicable investment restrictions.

If you are looking to transfer the asset out of the fund as part of a member benefit, or sell the asset to a related party, then this would need to take place at market value on arm’s-length terms.

It would also be prudent to seek advice on any tax or stamp duty outcomes that may apply should you be looking to transfer or sell the fund’s property assets.

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About the author

Garth McNally

Garth has worked in the Australian Superannuation industry for over 20 years with a specific focus on self-managed super funds. He provides ongoing support and training to individuals as well as to professionals working in the superannuation area, including advisers, accountants and lawyers. He is a regular contributor to industry publications and to the leading professional bodies including Chartered Accountants Australia & New Zealand (CA ANZ).

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