If an SMSF and a related party, including a related SMSF, plan to purchase an ungeared property the simplest and least expensive method may not necessarily be the best.

If the property is acquired as tenants in common, and it is intended that the SMSF acquire the other party’s equity in the future, this would NOT be possible unless the property was business real property. If it is not business real property the subsequent acquisition would only be possible if the property had been purchased via a 13.22C entity, typically a unit trust. In this scenario, ownership would be indirect via the unit holding so the transfer of ownership would be achieved by transferring units.

Even if the property was business real property, consideration should be still given to acquiring it via the unit trust as unit transfers are much easier and less complex than partial conveyances. The real advantage, however, is if the fund is required to acquire the property in full and requires a borrowing. If the business real property is held in the trust the SMSF would be able to acquire it from the trust with a limited recourse borrowing. If it were owned as tenants in common the fund would not be able to acquire the balance with gearing.