Property development is a popular wealth strategy – but when done through SMSFs, it can be a legal trap. With the wrong structure, trustees risk breaching the in-house asset rule or the sole purpose test. But with smart planning, SMSFs can be used in conjunction with a unit trust to fund development safely and legally.
Let’s look at how two plumbers, business partners and mates, pulled it off – and the five strategic wins their structure delivered.
Case study: Paul & Rob – joint property investment using SMSFs and a unit trust
Paul (45) and Rob (47), co-owners of a plumbing business, each had about $350,000 in super. They wanted to co-invest in a small property development. But they couldn’t borrow directly through their SMSFs to fund it.
With professional guidance they each established a leading member SMSF with a corporate trustee. Instead of developing within their SMSFs, they each invested 50% in a specially created unit trust.
Here’s why the strategy worked.
- No in-house asset breaches
Because neither SMSF owned more than 50% of the unit trust, it was not classified as an in-house asset under section 71 of the SIS Act. This kept both funds fully compliant.
- Development held outside the fund
The building project happened in the unit trust, not inside the SMSFs. This reduced risk from construction liabilities and protected the SMSFs from breaching the sole purpose test.
- Each fund maintained control
Despite the joint structure, each family retained independent control of their own SMSF. They could exit, distribute or reinvest without needing consent from the other party.
- Smart tax treatment on profit
When the development was sold, profits flowed to the unit trust unitholders – the SMSFs. Each fund paid only 15% tax (or 0% if in pension phase). No nasty tax surprises.
- Legal risk managed from day one
Their SMSF legal team created:
- A unitholder agreement
- A trustee structure that allowed borrowing within the unit trust
- A full SIS compliance checklist
- Proper unit registry
- SMSF deeds that allowed unlisted trust investments
Result: Both SMSFs passed audit and ATO scrutiny.
Final word
Joint property deals using SMSFs can work – if you use the right structure. The unit trust strategy offers flexibility, control, and compliance. Just don’t DIY it. Legal advice and SMSF strategy are non-negotiable.
