Can I own an overseas propety in my SMSF?

Question:

Is it permissible for an overseas property to be part of a Self-Managed Super Fund (SMSF) if it is not rented out but is intended as an investment for future superannuation income?

Answer

To address this question, we must consider the regulations and guidelines concerning property ownership within an SMSF. It is also essential to reflect on the motivations behind acquiring property as an investment, particularly overseas property, and whether this aligns with the fund's overall investment strategy.

Ownership of Property in SMSFs

Self-Managed Super Funds are permitted to own both domestic and overseas properties. In fact, property is a highly favored investment class among SMSFs. According to the Australian Taxation Office's (ATO) December 2022 quarterly statistics, property constitutes approximately 15% of all SMSF assets, which includes both overseas residential and non-residential properties.

This statistic pertains specifically to direct property ownership and does not account for other investment structures such as managed funds or listed property trusts. Nonetheless, it is clear that property remains a prevalent asset within SMSFs.

Legal Considerations

The first consideration is whether it is legally permissible to own overseas property through an SMSF. It is crucial to examine the property ownership laws in the respective foreign country. For example, in the United States, there was a significant interest in SMSF investments in US properties about 10 to 15 years ago. While some investors pursued this opportunity, it raised concerns regarding compliance with local regulations.

In the case of investing in US properties, many opted to do so through a limited liability company (LLC), which held the property on behalf of the SMSF. Therefore, it is vital to research both the property ownership laws and any specific investment structures required in the foreign jurisdiction.

Restrictions on Property Use

Another critical aspect to consider is the rules and restrictions surrounding the use of the property. As mentioned in the inquiry, the property may not be rented out. It is important to note that neither you nor any related parties to the fund are permitted to occupy the property while it is owned by the SMSF. Although the idea of purchasing a vacation home or an investment property overseas may be appealing, personal use of the asset is prohibited.

Many clients express interest in acquiring properties such as chalets in France, apartments in Singapore, or beach houses in California. While these properties may sound enticing, it is essential to remember that personal enjoyment of the asset is not allowed while it remains part of the SMSF.

Conclusion

In summary, it is indeed possible for an SMSF to own property, including overseas property. However, it is crucial to consider the relevant legal frameworks and restrictions on personal use. By ensuring compliance with these regulations, you can make informed investment decisions that align with your SMSF's objectives.

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