Want To Use Your Super To Buy Your Cane Farm?
06-Sep-2016
Want To Use Your Super To Buy Your Cane Farm?
However, using a Self Managed Superannuation Fund (“SMSF”) to purchase farm land can be complex and it may not be a suitable entity for everyone. This
is because the management of SMSFs is highly regulated by law and there are lots of rules that need to be followed.
- Fred and Wilma Farmer own farm land in the Pioneer Valley valued at $600,000.
- They have a mortgage to the bank for an amount of $400,000.
- They have always made contributions to their individual super funds over the years and collectively have $650,000 in their super accounts.
- They are sceptical of the share market and have their money invested in cash only so are not making a lot of interest off this investment.
They see their financial planner who suggests to them to set up a SMSF and transfer the money they hold in their separate super funds into this one
SMSF. He then suggests that they use the SMSF to buy the farm land off them personally and pay off the mortgage. The SMSF pays Fred and Wilma the
$600,000 for the land (the current market value of the land) and Fred and Wilma pay out the mortgage owed to the bank of $400,000. They are left
with no personal debt and an amount of $200,000 cash. The SMSF then becomes the landlord and continues to receive a rental income from the farming
business and a written lease is put in place.
- The land needs to meet the definition of “Business Real Property”;
- The contract must be on arms length terms, and
- The transaction must be for the sole purpose of providing benefits to the members of the SMSF on retirement.
- The area containing the dwelling and used primarily for domestic or private purposes does not exceed 2 hectares; and
- The domestic or private use is not the predominant use of the property.
If the SMSF is going to borrow money for the purposes of buying the farm land, then there are additional rules that also need to be complied with.
In summary, using a SMSF to purchase farm land can potentially be a way to achieve land ownership that would otherwise not have been possible.