Buying a Farm with SMSF: Is it Possible?
You may have heard that self-managed super funds (SMSFs) can purchase various investments, including residential & commercial properties. But you may not know that you can also use your SMSF to buy rural properties, including farms.
Like any investment, however, using an SMSF to buy rural land comes with a few complexities. For one, it should follow the ATO rules on investing. Also, if you’re taking out a loan to fund the purchase, it must comply with the Limited Recourse Borrowing Arrangements (LRBAs). So, if you’re considering buying a farm with your SMSF, read on.
Here’s what you need to know.
The first thing to remember is that, as with any other type of investment, the purchase of a rural property must fit within the SMSF’s investment strategy. The SMSF must acquire the property to provide retirement benefits for the fund’s members—not for personal use or enjoyment.
Furthermore, the ATO has specific requirements that must be met for a rural property to be purchased by an SMSF.
These requirements include:
- The property must be zoned as rural land:
The state or territory government should have zoned the property as agricultural land, primary production land, or rural residential land.
- The SMSF should solely use the property for a business purpose:
The SMSF should solely buy the rural property to generate income from farming or other business activities. The SMSF trustees, members, or related parties can’t use the farm for personal use or enjoyment.
- The SMSF must have a genuine intention to carry on a business:
The SMSF must intend to sustain farming or other business activity on the rural property. You can demonstrate it by having a business plan in place.
- The SMSF should predominantly use the land for farming purposes:
The SMSF can’t use the farm for any other purpose, such as holiday homes or rental properties. It must be used predominantly for farming activities.
- The SMSF can’t use the property as security for a loan:
The fund can’t use the farm as security for a loan, such as a mortgage for the trustee’s holiday home.
- The SMSF must have the necessary expertise to manage a farm:
The SMSF trustees must have the necessary skills and knowledge to manage a farm. This includes having a good understanding of farming practices and the relevant legislation.
- The SMSF must have adequate insurance cover:
The SMSF must have adequate insurance cover to protect the property and the members’ interests.
Applying for SMSF property loans to purchase a farm
If you think owning a farm is a good investment for your SMSF, the next step to focus on is getting the funds for the purchase. You don’t have to spend your entire super fund to buy a farm. Instead, you can apply for SMSF property loans.
Again, keep in mind that you need to follow the LRBA rules when borrowing money through your SMSF. For instance, you can only get a loan for a single acquirable asset. That means the SMSF can only get a loan for one asset, and the property must be on one title. The property must also be held in a separate trust.
The Bottom Line
If you’re thinking of buying a farm with your SMSF, make sure you speak to a professional to ensure that the purchase meets all the requirements. Doing so will help ensure that your SMSF remains compliant and that your investment strategy stays on track. One of our SMSF loan experts can guide you through the process. Call us for a consultation.
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