Introduction
One of the most common questions SMSF trustees ask is whether they can transfer assets they own—or assets owned by a related party—into their self-managed super fund (SMSF). This can be done either through an in-specie contribution or an outright sale.
However, superannuation law generally prohibits SMSFs from acquiring assets from a related party, with only a few key exceptions. Understanding these rules is crucial to ensuring compliance and maximising strategic opportunities within an SMSF.
Who is Considered a Related Party?
Under superannuation law, a related party includes:
- A member of the SMSF
- A standard employer-sponsor of the fund
- A Part 8 associate of a fund member or a standard employer-sponsor
Standard Employer-Sponsors
A standard employer-sponsor is an employer that contributes to an SMSF for an employee under a direct arrangement with the SMSF trustee. However, if an employer only contributes because the employee has chosen the SMSF for their super, they are not considered a standard employer-sponsor.
Part 8 Associates
A Part 8 associate is someone closely linked to an SMSF member, including:
- Relatives of the member
- Other members of the same SMSF
- Business partners and their families
- A company or trust controlled by the member
This definition ensures that indirect relationships are also captured under the related party rules.
Exceptions to the Related Party Acquisition Rule
While SMSFs generally cannot acquire assets from related parties, there are key exceptions where an acquisition is allowed:
1. Listed Securities
SMSFs can acquire shares, bonds, and other listed securities from related parties, provided they are purchased at market value. If acquired as an in-specie contribution, the SMSF must record the contribution at the security’s market value at the time of transfer.
2. Business Real Property
A significant exception is business real property, which allows an SMSF to acquire commercial property from a related party. The key requirements are:
- The asset must be real property (land or buildings).
- It must be wholly and exclusively used in a business.
- The business does not have to be conducted by the related party.
For example, a warehouse leased to a third-party business could qualify, but a residential property owned by a related party and rented to an unrelated tenant generally would not.
3. Life Insurance Policies
SMSFs can acquire life insurance policies from related companies but not from fund members or their relatives. This means that a company owned by an SMSF member can transfer a policy to the SMSF, but an individual member cannot.
4. In-House Assets (Subject to Limits)
SMSFs can acquire certain in-house assets from related parties, but only if the fund’s total in-house assets remain below 5% of total fund assets. These include:
- Loans to or investments in a related party
- Investments in a related trust
- Assets leased to a related party
A key exception applies to unit trusts that meet the Regulation 13.22C compliance rules, allowing them to be excluded from the in-house asset restrictions.
5. Mergers and Relationship Breakdowns
An SMSF can acquire assets from a related party in specific cases, such as:
- Mergers between superannuation funds
- Transfers following a relationship breakdown where assets are split between funds
The Market Value Requirement
For an SMSF to acquire an asset under an exception, it must be purchased at market value. This applies whether the acquisition occurs through a sale or an in-specie contribution.
For listed securities, market value is determined based on the stock exchange price at the time of transfer. For property, a formal valuation may be required to substantiate the market value.
Avoiding Anti-Avoidance Traps
Superannuation law includes anti-avoidance provisions to prevent indirect acquisitions that breach the related party rule. If an asset is transferred through an intermediary—such as a trust or a partnership—to bypass restrictions, the ATO may still consider it a prohibited transaction.
For example, if a member sells a property to a company, which then sells it to the SMSF, this could be seen as an attempt to circumvent the rules and lead to compliance issues.
Case Study: Business Real Property Exception
Anne owns a cattle farm of 40 hectares, where she runs a primary production business. She also has a large ornamental garden and hedge maze around her home. While she uses less than two hectares for private purposes, the majority of the land is dedicated to her farming business.
Anne wants to sell the property to her SMSF at market value. Because her private use is limited to less than two hectares, the business real property exception applies, allowing the transfer to take place legally.
Final Thoughts
Understanding the rules around asset acquisitions by an SMSF is essential for trustees looking to optimise their investment strategies while staying compliant. While the general rule restricts purchases from related parties, strategic exceptions—such as business real property and listed securities—provide opportunities for SMSFs to build wealth effectively.
Before making any acquisitions, trustees should seek professional advice from a financial adviser or SMSF specialist to ensure compliance with superannuation laws and ATO regulations.
Disclaimer: This content is for professional financial planners and advisers only and is not intended for client distribution. It is general information and does not consider individual circumstances. Always seek professional advice before making financial decisions.