Purchasing Rural Property within a SMSF
One of the most common questions we receive at farmbuy.com is “Can I buy a farm in a SMSF?”. Now the first thing we stress is always seek advice from a qualified Accountant or Financial Adviser first.
The Short answer to the question is YES but there are a number of criteria it must meet. These include but are not limited to:
Is it Business Real Property?
Business real property generally means land and buildings used wholly and exclusively in a business.
If business real property is used in a primary production business such as a farm, it can still meet the test of being used wholly and exclusively in a business even if it contains a dwelling that is used for private or domestic purposes. The dwelling must be in an area of land no more than two hectares and the main use of the whole property can’t be for domestic or private purposes.
More information regarding business real property can be found on the ATO Website here
Does it meet your SMSF’s Investment Strategy?
Before you start making investments you must have an investment strategy. This sets out your fund’s investment objectives and specifies the types of investments your fund can make. Your 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 be documented)
- consider whether to hold insurance cover (such as life insurance) for each member of your SMSF.
You will need to ensure the purchase of Business Real Property (i.e The Farm) is a component of your investment strategy.
Does it meet the Sole Purpose Test?
This means your SMSF needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.
There are a number of other questions that are commonly asked:
- Can your farming business lease the farm from the SMSF?
- Will the SMSF pay stamp duty on transfer of the farm to the SMSF?
- Can I borrow against the farming asset within the SMSF
As we stressed at the start of the article. Before any decision you should always engage an qualified Accountant or Financial Adviser.
The good news is that, YES, you can buy a farm within an SMSF.