Thinking About Using Your SMSF Property For A Christmas Getaway?

As the festive season approaches, many SMSF trustees begin to look longingly at their fund’s holiday-style property — the beach house sitting empty during summer, the Airbnb-style apartment that hasn’t been booked over New Year, or the rural retreat that seems perfect for a family getaway.

After all, you own the SMSF.

The SMSF owns the property.

You pay for its upkeep.

So why not enjoy it for a week or two?

It’s an understandable question — and one of the most common traps for SMSF trustees.

Unfortunately, the rules around using SMSF-owned property are incredibly strict, particularly when it comes to personal use. Even spending one night in the property, even at full market rent, even if the property is vacant anyway, can breach the superannuation legislation.

The Australian Taxation Office (ATO) takes this area seriously. At the centre of these rules is the sole purpose test, which requires that an SMSF be maintained exclusively for providing retirement benefits to its members. Using fund assets for lifestyle, convenience or personal enjoyment — even briefly — fails this test.

What many trustees don’t realise is that these rules apply regardless of the time of year, and apply not only to SMSF members but also to a broad group of related parties, including children, parents, siblings and even business partners.

In this article, we break down exactly why you can’t use your SMSF property for a Christmas stay, what happens if you do, and the options available if you eventually want to live in or use the property. Our goal is to help you enjoy the festive season — without putting your SMSF compliance at risk.

Why SMSF Trustees Cannot Use Fund Property For Holidays

The Sole Purpose Test – The Heart of the Rules

The core reason personal use is prohibited comes down to the sole purpose test — a foundational requirement for all SMSFs.

Your super fund must operate only to provide retirement benefits to members (or their dependents upon death). Any personal, pre-retirement benefit — including a holiday stay — is considered a breach.

Using an SMSF property for Christmas holidays, a weekend break, or even storing personal belongings provides an immediate personal benefit. This is inconsistent with the fund’s purpose of generating long-term retirement savings.

The ATO is explicit:

Residential property owned by an SMSF must not be lived in, stayed in, or used by members or related parties.

This applies whether the property is in the city, by the beach, or in the country — and whether it’s empty or fully tenanted.

Who Counts As A ‘Related Party’?

This is an area where trustees can unintentionally get caught out.

A related party includes:

• All SMSF members;
• Your spouse or partner;
• Your children (including adopted or adult children);
• Parents, grandparents, siblings, uncles, aunts, nieces and nephews;
• Business partners; and
• Any companies or trusts linked to you or other fund members.

This definition is extremely wide. Even if your distant relative is staying for free — or offering to pay rent — the property is still off-limits.

“What If We Pay Market Rent?”

Some trustees assume they can “fix the problem” by paying market rent back to the SMSF. After all, renting at a commercial rate sounds fair and arm’s-length.

Unfortunately, this is not permitted for residential SMSF property.

Two major issues arise:

1. It still breaches the sole purpose test – Even with rent paid, the ATO may conclude the arrangement exists partly for lifestyle benefit rather than for genuine investment purposes.

2. It triggers the in-house asset rules – If an SMSF rents property to a related party, the asset becomes an in-house asset, and in-house assets must remain under 5% of the fund’s total value.

Holiday homes are often high-value assets, so even one related-party lease would almost always push the fund over the limit, resulting in a reportable compliance breach.

Even if your SMSF is large enough that 5% is not exceeded, the ATO may still view the arrangement as inconsistent with proper SMSF operation.

Bottom line: paying rent does not make the arrangement compliant.

If You’re Retired Can You Use The Property?

Many trustees assume that once they reach retirement or preservation age, they can start using the SMSF property themselves.

Unfortunately, retirement does not automatically change the rules.

Even in retirement:

• The property is still owned by the SMSF;
• It is still a fund asset; and
• Its use must still comply with superannuation legislation.

This means you still cannot:

• Live in the property;
• Stay in it temporarily; and
• Use it as a holiday home.

To use the property personally, you would need to transfer the asset out of the SMSF.

Can You Eventually Live In The Property?

There are two compliant pathways:

1. An In-Specie Transfer

Once you have met a condition of release, the property can be transferred from the SMSF into your personal name.
Examples of conditions of release include:

• Retiring after reaching preservation age; and
• Ceasing gainful employment after age 60.

Once the property is transferred to you personally, you may live in it without breaching SMSF laws.

However, an in-specie transfer may trigger capital gains tax (CGT) or other tax consequences, depending on the fund’s circumstances — so seeking advice is essential.

2. Purchasing the Property From the SMSF

You may also buy the property from your SMSF, provided:

• The sale is conducted at arm’s length;
• A proper valuation supports the price, and
• The transaction aligns with superannuation and trust deed requirements.

Buying a property from a self-managed super fund (SMSF) can involve extra taxes, such as stamp duty, and higher legal costs, as an SMSF is legally separate from you. It’s important to get independent legal advice, personalised tax and financial advice so you understand the rules and avoid unexpected costs or legal consequences.

What Happens If You Break The Rules?

Breaches relating to personal use of SMSF assets are treated seriously by the ATO and the regulator.

Possible outcomes include:

• Severe ATO penalties

If the ATO audits and finds a breach, consequences may include:

For trustees (personally):

• Administrative penalties (over $18,000 per trustee per breach); and
• Trustees must pay penalties out of personal funds, not the SMSF

For the SMSF:

• Loss of complying fund status;
• Fund’s assets taxed at 45%;
• Forced sale of the property; and
• Trustee disqualification.

• Being forced to reverse the arrangement: You may be required to unwind the transaction, tenancy or use immediately.
• Trustee disqualification: In serious cases, trustees may be removed or prohibited from acting as SMSF trustees in the future.
• Loss of fund compliance: This is the worst-case scenario. A non-complying SMSF may face heavy tax penalties, including losing concessional tax treatment.

So, What Can You Do With An SMSF Holiday Property?

If your SMSF owns a holiday-style residential property, the compliant approach is simple:

• Rent the property to unrelated tenants;
• Charge market rent, supported by evidence;
• Run the arrangement as a commercial investment; and
• Keep the property at arm’s length — not as a family asset.

If you want a holiday at the property, the safest approach is to book a separate holiday accommodation elsewhere.

Wilson Pateras & Your Self-Managed Super Fund

It’s easy to see how SMSF trustees blur the lines at Christmas. Property purchased as a retirement investment can feel personal, especially when it’s a holiday home.

But in the world of SMSFs, intent doesn’t override legislation. The rules are clear, and the consequences of getting it wrong can be significant.

If you’re unsure about your SMSF’s compliance, future plans for your property, or whether past personal use may require review, now is the ideal time to seek professional advice.

At Wilson Pateras, we work closely with SMSF trustees to help them invest confidently and stay compliant with ATO requirements. If you have questions about your holiday property, future retirement plans or SMSF strategies, our specialists are here to help.

Get in touch with our team today to let us guide you through the rules, protect your retirement wealth, and ensure your SMSF remains compliant — this Christmas and every year beyond.