A lot of people are looking into investing in real estate via Airbnb. This includes self-managed super funds (SMSF). At the same time, some people see it as a way to make money, while others see it as a way of earning passive income. In fact, many investors are now listing their rental properties on Airbnb to generate extra cash flow. The popularity of short-term rentals like Airbnb is proliferating. In Australia, there are now over 40,000 listings for people wanting to rent out their homes. And many of those listings are being advertised on the site as a B&B. But what does that mean? What are the benefits? And how do you protect yourself from issues that could arise?
Q1. Purchase tiny houses using SMSF funds (no borrowing) and put them on the existing land to AirBnb (council is ok with this) but not sure if this is allowed. Does it depend on whether the SMSF pays us to rent or not?
If the SMSF owns TinyHomes as an investment, ensure this is regarded as a commercial enterprise, not a residential rental. The trustee must review the investment strategy of an SMSF and ensure it provides for the risks associated with investing in assets such as short-term rentals and leases. In particular, there are significant liquidity issues related to short-term rentals. If the trustee does not have appropriate documentation in place, the risk is that the trustee could face claims against the fund. In addition, the investment strategy must allow for the return of capital if the fund cannot continue to receive rent payments from the property. This is particularly relevant where the fund owns multiple properties. Then ensure the SMSF owns legal title to the assets and the activity is covered in the Investment Strategy of the SMSF: https://smsfwarehouse.com.au/smsf-audit/investment-strategy-diversification/
Q2. Purchase an existing house to AirBnb (with borrowing). Want to know if, down the track, tiny homes can be added to also AirBnb? Assume this would have to be with SMSF funds.
SMSFs can incur borrowing but under limited circumstances. A single acquirable asset can be purchased, and the term used by the ATO is “Business Real Property”. The SMSF would own the land and buildings, not just a mobile home. More guidance here: https://smsfwarehouse.com.au/property/investment-rules/
Q3. Can we purchase something for AirBnb as tenants in common? i.e. existing house and land? Can either/both the SMSF and ourselves borrow to make this happen?
An SMSF can purchase property with related parties using tenants in common or an ungeared unit trust structure. Be mindful that with the latter, no loans are allowed, and we explain more here: https://smsfwarehouse.com.au/property/unit-trusts/
Q4. There is a vacant block of land for sale adjoining the commercial block we currently own. Is there any possibility I could purchase this as tenants in common with my SMSF? It would be about 1/4 owned by ourselves and 3/4 owned by the SMSF. I think the trouble would be about building anything on it as it would change nature, but what about if we put tiny houses there? I would also ideally want an easement through it to bring electricity from the main road to our block as it will be difficult for us to get power to our existing block. Would this be ok? I know it would benefit us, but I was wondering, if possible, somehow?
Be mindful that if an SMSF uses loans, the nature of the property can’t be changed. We explain more here: https://smsfwarehouse.com.au/property-development-2/
Q5. Can we purchase a houseboat for AirBnb?
The SMSF Investment Strategy allows for this type of investment and fits your investment objectives so that you can execute this transaction. Be mindful of maintaining all transactions on commercial terms and an arms-length basis, ensuring there is no personal use of the assets. Guidance on Investment Strategies here: https://smsfwarehouse.com.au/smsf-investments/strategy/
Q6. My other query was about our current AirBnb and at which point this type of investment can be deemed ‘commercial’ or ‘carrying on a business? We plan to have more AirBnb’s and have plans to develop the commercial land to have (in a family trust) to be mixed-use and have up to 10 AirBnb’s on it.
We note you have a Family Trust as well. Be mindful that we do SMSFs only as this is our area of specialisation: https://smsfwarehouse.com.au/smsf-administration/
Q7. From a tax perspective, it would be good to be able to sell the business to the SMSF when we are closer to retirement (currently 47 & 51), but not sure if this is possible and what the implications are.
You asked if an asset could be sold to the SMSF. Always ensure your transaction’s sole purpose is to provide for your retirement benefit genuinely. We explain more here: https://smsfwarehouse.com.au/property/investment-rules/ Trustees have a lot of responsibility to manage their SMSF in a compliant way and adhere to all the guidelines provided by the ATO. Please use the search function on our website for more info. The Australian Tax Office does not consider Airbnb rental investments and therefore doesn’t require investors to pay capital gains tax on the income generated. However, if you choose to invest in real estate as part of your retirement savings, you must comply with all the rules and requirements that apply to any other investment portfolio. In particular, you must have a written investment policy and keep records of transactions. For example, you will need a written investment strategy, and no one related to the fund (such as family members or associates) cannot use the property. You must also ensure the property complies with all relevant building code requirements and zoning laws. If the ATO deems the fund to be providing commercial, and residential accommodation, this could trigger GST liabilities for the fund. So make sure you research before going down this path – especially if you are considering buying an investment property for rental purposes.
Suggested Read: https://superannuationwarehouse.com.au/smsf-videos/smsf-qas/