Purchasing rural property within your SMSF
One of the most common questions we get at GoRegional is “Can I use my super to buy land?”. We must stress that you should always seek advice from a qualified accountant or financial adviser first, but the short answer to the question is YES! If you have a self-managed super fund (SMSF), you can buy rural property through it. The three key criteria the rural property needs to meet are:
Is it Business Real Property?
The term ‘business real property’ refers to 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 this condition 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 Australian Tax Office website here.
Does it meet your SMSF's investment strategy?
Before you start making investments through your SMSF, 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 reflects the purpose and circumstances of your fund and its members (your review and any decisions 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 (in this case, the farm) is a component of your investment strategy.
Does it meet the sole purpose test?
This means your SMSF and its assets need to be maintained for the sole purpose of providing retirement benefits to its members, or to their dependants if a member dies before retirement. Questions commonly asked to determine if an asset meets the sole purpose test include:
- 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?
Again, any decision you make has to be guided by the counsel of a qualified accountant or financial adviser. The good news is that, yes, you can buy a farm within an SMSF – and as of September 2020, with the COVID-19 pandemic making cities a lot less fun to live in, it might be time to use your SMSF to escape to the country!