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Can my husband & I purchase a farm with our SMSF (1/4 SMSF & 3/4 us personally)???

Discussion in 'Superannuation, SMSF & Personal Insurance' started by EMMA C, 19th Jan, 2012.

  1. EMMA C

    EMMA C New Member

    Joined:
    19th Jan, 2012
    Posts:
    2
    Location:
    Orange NSW
    I would love to hear your thoughts....

    My husband & I currently own an income earning farm (250 acres) in Central NSW.

    The farm is productive & currently makes us an income of approx $40,000 per annum.

    The current market value of our farm is $600,000. (this is with shed / cattle yards etc although no house)

    We currently have $150,000 available in our SMSF.

    Ideally we would like to do the following:

    * Sell either a quarter or a half of the property (farm) to our SMSF. We would sell a half (50% = $300,000) if our SMSF was able to borrow 50% from the bank for the purchase. Otherwise we would sell 25% to our SMSF for the amount of $150,000.

    * We would then like to proceed with building a farm house on the property with our own money? (not SMSF money) I understand that we would then have to pay a rental income to the SMSF (being either 25% or 50% of whatever the market rental is) plus we would also pay a market agistment rate to the SMSF for the use of the land to run our cattle.

    * I would also imagine that the SMSF is then entitled to ownership/value of either 25% or 50% of the house that we would have individually contributed (as it will obviously be adding that value to the overall property value). I am happy for this to be the case as ultimately it is for my retirement & benefit.

    I look forward to hearing your responses/suggestions!

    Cheers,
    Em
     
  2. MikeF

    MikeF Member

    Joined:
    1st Feb, 2008
    Posts:
    12
    Location:
    Sydney, NSW
    Hi

    I think what your considering to do is mostly acheiveable.

    The SIS Act allows for the acquisition from related parties (section 66) of what is refered to as 'business real property' subject to certain requirements being met including the 'business use test' that requires the property being used wholly and exclusively in one or more businesses.


    Try reading the ATO's SMSF Ruling SMSFR 2009/1 as its all about Business Real Property. In this ruling it outlines that generally primary production business is considered to be 'business real property'.

    Subsection 66(6) also specifically provides for the following application of the business use test in the business real property definition:

    "For the purposes of the definition of business real property in subsection (5), real property used in one or more primary production businesses does not cease to be used wholly and exclusively in that business or those businesses only because:
    (a) an area of the real property, not exceeding 2 hectares, contains a dwelling used primarily for domestic or private purposes; and
    (b) the area is also used primarily for domestic or private purposes;
    provided that the use for domestic or private purposes referred to in paragraphs (a) and (b) is not the predominant use of the real property.

    The only issue I see is that you will not be able to borrow against the property as lenders and the Limited Recourse Borrowing Arrangement (LRBA) laws make it impossible to mortgage only part of a property.
     
  3. wdongli

    wdongli Well-Known Member

    Joined:
    31st Mar, 2010
    Posts:
    1,292
    Location:
    Perth
    Could you make money from your farm?

    Just want to put some salt into this very clever question by raising a very basic question, Could you make money from your farm?: use the retirement money for a business or investment now or near future.

    ***
    Can you use Super or not is a purely technical issue? My question is do you really believe you could make enough money from the farms.

    Super to put into farm is to use the money lever locked in the future retirement. If you could make money from farm, you can use other money lever too.

    If you believe you could make money from your farm and which could be big enough you could hire a accountant or a few accountants to figure out which levers better.

    ***
    We all try too much to be clever in tech matters but tech themselves are levers which could break you down or push you up much more than you can with your own money.

    Your winning or failure in your farm investment will not depend on the Super or any money levers but if could you run your farms very profitable!
     
    Last edited by a moderator: 22nd Jan, 2012
  4. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    653
    Location:
    Sydney
    "farms" are often made up of several adjacent titles ie separate title deeds. Is you farm one title or more?
     
  5. EMMA C

    EMMA C New Member

    Joined:
    19th Jan, 2012
    Posts:
    2
    Location:
    Orange NSW
    Many thanks for your responses!

    Terry W... Our farm is made up of only one title.

    Thanks. Em