Tax Planning Strategy 179 | Transferring a Life Interest in BRP into an SMSF

This strategy involves transferring the life interest in business real property into a SMSF (instead of transferring the whole interest in the real property). The SMSF becomes the ‘life tenant’ with the ‘life in being’ based on the life expectancy of a member of the fund. The life tenant will become the registered proprietor of the land on the title and have full legal and beneficial ownership (subject to the interest of the remainder interest).

The two advantages with transferring a life interest to the SMSF instead of full title to the property are:
• The value of the life interest in the property will be less than the value of the property. This means lower stamp duty and a lower purchase cost of the asset that the SMSF must fund. 
• As the owner of the life interest the fund will receive any rental income generated by the property. This rental income from the BRP is concessionally taxed in the SMSF (or tax free if the fund is in the pension phase).  

Expert advice is required from solicitors in relation to drafting the life interest documents and purchase contract, stamp duty and land tax consequences.