A common question SMSF trustees ask is whether they can sell or transfer their SMSF assets to a related party, like themselves or a family member.

Selling to related parties is possible

While there are rules about what assets an SMSF can buy from a related party, there’s no law that says you can’t sell or transfer SMSF assets, like property or shares, to a fund member or related party.

You can either sell the asset or transfer it from your SMSF to yourself as a member, provided you’ve met certain conditions (like retirement). This is called an “in-specie transfer,” which means the SMSF transfers its asset to you personally.

For an SMSF to sell or transfer an asset to a member or related party, the transaction must be done at market value and on an arms-length basis. This means the sale should be treated like a regular commercial deal, as if there’s no prior relationship between the parties. It’s crucial that the price reflects the true market value of the asset.

Why sell or transfer to a related party?

Superannuation law allows SMSFs to buy assets, such as property, through the fund. However, there are strict rules about how these assets can be used. According to the superannuation “sole purpose test”, your superannuation investments must be used solely to provide you with retirement benefits rather than providing you with current day personal benefits.

For example, if you temporarily stay or live at a property owned by your SMSF, it will fail the sole purpose test. This could lead to your fund losing its tax concessional treatment, and you could face fines or other penalties. To avoid these risks, trustees might choose to sell or transfer assets out of their SMSF to themselves personally.

Alternatively, for members who have retired and can receive their benefits, they can either receive their benefit in cash or by transfer of the fund’s assets. For instance, if a member requires a lump sum payment for a particular reason, say for a holiday, and the SMSF owns a parcel of shares, those shares could be transferred to the member’s personal name rather than the SMSF selling the shares and paying the member a cash payment. However, this type of payment could have tax consequences, so it’s best to seek advice about whether an in-specie asset transfer is appropriate for your personal financial circumstances.

Warning – special rule for members who have a pension and take a lump sum payment

The rules say that pension payments cannot be paid in-specie, that is, pension payments must be paid in cash and cannot be made using assets. So if you have a pension in your fund and want to take a lump sum from it (whether it is a cash or in-specie lump sum), this will not count towards meeting the “minimum pension payment rules” that require you to take a minimum amount each year from your pension account based on your age. So although in-specie lump sum payments from pension accounts are still permitted, a cash payment of the minimum required amount is also needed in order to satisfy the minimum pension payment rules. 

Things to consider

Before selling or transferring SMSF assets to a related party, keep these things in mind:

• Check your SMSF trust deed and investment strategy to make sure there are no restrictions on selling or transferring assets to a related party.
• Understand the potential tax consequences of the sale or transfer, like capital gains or income tax liabilities.
• Consider any stamp duty that may apply when transferring assets, such as property, from the SMSF.

Selling or transferring SMSF assets to a related party is a valid option for many SMSFs. If you’re unsure about the tax implications or have any further questions, feel free to reach out to us for more information.