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Re: SMSF property - can I rent by the room to 3 unrelated people? Is it allowed?

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Hello,

Thank you for reading this post. 

I have a property within my SMSF (3 bed/2bathrooms) which I rent to a family, but it isn't giving my super a good return on investment. I've been thinking of ways to improve the situation, and therefore do a better job for my super. 

 

My thoughts with this property are that If I rent each fully-furnished room (one person per room so 3 [unrelated] people max in the house as this is a 3bedroom/2bathroom house) with all bills included + cleaning service once a week of the common areas, I will be able to achieve a better return on this investment property, and therefore do a better job for my SMSF. 

 

My questions are:

1) Is this strategy allowed within the SMSF scheme?

2) Do I need to request permission to the ATO or any other entity? I've contacted the local council to understand any rules and regulations re renting a house by the room. I'm waiting to hear from them. 

 

Any help is much appreciated. Thank you!

Maria

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Devotee Registered Tax Practitioner

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1) Is this strategy allowed within the SMSF scheme?

 

As long as the income is rent, and none of the tenants are associated with a member in any way, it looks OK on the information supplied.

 

2) Do I need to request permission to the ATO or any other entity?

 

Your council is the best authority on this.

 

ATO does not give "permission" for things like this, but you you should put it to the fund auditor before you do it  -  to make sure that they will not have any issues after the event.

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Best answer

Devotee Registered Tax Practitioner

Replies 0

1) Is this strategy allowed within the SMSF scheme?

 

As long as the income is rent, and none of the tenants are associated with a member in any way, it looks OK on the information supplied.

 

2) Do I need to request permission to the ATO or any other entity?

 

Your council is the best authority on this.

 

ATO does not give "permission" for things like this, but you you should put it to the fund auditor before you do it  -  to make sure that they will not have any issues after the event.

Devotee

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Hi @MariaC

 

Before you change the type/nature of investments in your SMSF you should review the fund's investment strategy. This is what specifies the types of investments your fund can make. Your SMSF investment strategy should be in writing and must be reviewed regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members (your review and any decisions made should also be documented).

 

You can find more information about investing within your SMSF on the ATO website here: Investing.

 

JF

 

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Devotee

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Hi @MariaC

 

Just wanting to point out a couple of things to ensure your SMSF is operated in accordance with the legal standards under Supernanuatoin law:

 

- A real property owned by an SMSF must not be used by any one who is a related party of the fund unless it is exempt from the "in-house asset rule", or, the value of such assets are below 5% of the overall fund's value. Failure to comply would result in a breach of the rule and the sole purpose test - penalty charges may apply.

 

- All investments made by an SMSF must be conducted on arm's length basis and at market value - a fund's property should never be rented below market value, or on terms that are more favourable to the other party than would reasonably be expected if the transaction was at arm's length in the same circumstances.

 

- Any services paid for by the SMSF in the course of investment (i.e. cleaning service) must be properly documented. If the trustee happens to be in the business of providing certain services that are relevant to the SMSF (in this case say they happen to do cleaning service), then its important to note should the fund chooses to use that service and pay themselves a fee, the payment must be addressed toward their actual business which must be officially invoiced by that business. A SMSF cannot remunerate its trustee for any kind of services rendered. However, this prohibition does not apply if:

 

                     (a)  the trustee performs the duties or services other than in the capacity of trustee; and

                     (b)  the trustee is appropriately qualified, and holds all necessary licences, to perform the duties or services; and

                     (c)  the trustee performs the duties or services in the ordinary course of a business, carried on by the trustee, of performing similar duties or services for the public; and

                     (d)  the remuneration is no more favourable to the trustee than that which it is reasonable to expect would apply if the trustee were dealing with the relevant other party at arm's length in the same circumstances.

 

 Hope these information are helpful.

 

 

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