Want to use this trick to help your kids buy property? Think again

Self-managed super funds (SMSFs) are known for letting you invest in just about anything, but don't think this means you can buy a house for your kids under the guise of an investment.

"As the trustee of a self-managed super fund, you have the power to make investment decisions that will suit the needs of your fund and its members," says Yannick Leko, founder of SMSF Loan Experts.

"A self-managed super fund can be your ticket to a healthy and wealthy retirement - as long as you comply with the sole purpose test."

Sole purpose

All investments in an SMSF must be for the sole purpose of providing retirement benefits for members of the fund.

"This simply means that no relatives or associates of the trustee can gain any immediate benefit from the fund's assets or activities - this includes occupying the space," says Leko.

According to Leko, a property bought under an SMSF must:

• Solely provide retirement benefits to fund members,
• Not be acquired from a related party of a member,
• Not be lived in by a fund member or any fund members' related parties; and
• Not be rented by a fund member or any fund members' related parties.

"Put simply, this means you cannot purchase your own home using your SMSF, and you cannot purchase your children or any related party a home with your SMSF.

"The key regulation, in this case, is the sole purpose test under the federal Superannuation Industry Supervision Act (1993) that defines an SMSF and who can benefit from the investment. The most important part of the Act for trustees to familiarise themselves with is the sole purpose test, and how to apply the test to their personal situation when making an investment decision," says Leko.

The legislation is designed to prevent you buying a property that suits your kid's needs rather than your own.

"This concern is also why you can't rent the property to yourself or a related party," he says.

"It is essential to understand the restrictions that are in place surrounding SMSF investments before getting your heart set on an asset that may not align with these rules."

Forget the holiday house

All this means that investors who thought they could purchase the perfect holiday home as part of their SMSF need to take pause.

"There is a loophole that investors are gambling on, which is seeing them enjoy summer holidays in their investment property.

"The rule stipulates that you can stay in your SMSF investment property while you perform maintenance and repairs.

"This rule has been abused by people purchasing holiday homes that they are leasing on Airbnb, and then conveniently undergoing their annual maintenance and repair over the Christmas school holidays."

Get stories like this in our newsletters.