13.22C unit trusts: how an SMSF co-invests in property with family

Your SMSF has cash. Your family trust has cash. Neither has enough to buy the property you want on its own. Outside super you'd set up a unit trust, each put in your share, and be done. Inside super, three rules get in the way: the 5% in-house asset limit, the ban on buying assets from related parties, and, since 10 August 2026, the ban on new LRBAs for residential property.

A Regulation 13.22C unit trust is the way through the first two, and an alternative to borrowing for the third. It is also the SMSF structure we see broken most often by accident. This guide is drawn from our own client e-book on 13.22C companies and unit trusts. It covers the conditions, the one-strike rule, four ways families use these structures, the tax, and the ten traps. It's general information: the decision to invest your super this way is for a licensed financial adviser, and the trust deed is for a specialist solicitor. We do the tax, accounting and compliance work, and keep the structure clean year to year.

What is a 13.22C unit trust?

"13.22C" is shorthand for Division 13.3A of the Superannuation Industry (Supervision) Regulations 1994, which works through subparagraph 71(1)(j)(ii) of the SIS Act. Three regulations sit together:

If the company or unit trust meets every condition in 13.22C, the SMSF's units or shares are not in-house assets. That has two big effects:

• No 5% cap. The fund can own 10%, 60% or 100% of the trust, and the investment can be most of the fund, subject to its investment strategy.
• Buying more from family is allowed. Section 66(2A) lets the fund acquire existing units or shares in a 13.22C entity from a related party at market value. So the fund can buy out the family trust's units over time.

Normally an SMSF can't do either. A unit trust controlled by members and their associates is a "related trust", so units in it are in-house assets, and units in a private trust can't be bought from a related party. Our guide to related parties and in-house assets explains those rules.

Key point: A 13.22C structure is a trade. The law lets your fund pool unlimited capital with your family. In return the entity must stay debt-free, passive and clean of related-party dealings for its whole life.

What conditions must a 13.22C unit trust meet?

Every one of these has to be met when the fund acquires its units, and kept up for as long as it holds them.

The three-year look-back stops an obvious workaround: you can't sell a rental property to a friend and have the 13.22C trust buy it from them six months later.

Unit trust or company?

The regulations allow either. For property, a unit trust is usually the better tax outcome, because income and capital gains flow through to the unitholders and keep their character.

For family co-investors, the CGT position is changing. From 1 July 2027 individuals and trusts lose the 50% CGT discount on future growth (it is replaced by CPI indexation of the cost base and a 30% minimum tax), while complying super funds keep their one-third discount. Our CGT discount changes guide explains how the 30 June 2027 values are locked in.

What is the 13.22D one-strike rule?

Most SMSF mistakes can be fixed. This one can't.

If any event listed in regulation 13.22D happens, regulation 13.22C stops applying to the fund's investment in that entity straight away. Under 13.22D(3), neither 13.22B nor 13.22C can ever apply again to the fund's investments in that entity, including units it buys later. The ATO confirms this in SMSFD 2008/1. Repaying an overdraft the next morning doesn't restore anything.

What follows:

• The fund's units become in-house assets.
• Because a property trust is usually far more than 5% of the fund, the fund breaches the 5% limit at the next 30 June and must have a written plan to get below it before the end of the following year. In practice that usually means selling units or the property, with stamp duty, CGT and legal costs.
• The auditor must report the breach to the ATO.

Two levels of trigger, as the ATO explains in SMSFD 2008/1:

• Fund-level: if the SMSF goes above six members, every 13.22C entity the fund holds loses the exemption.
• Entity-level: if one unit trust borrows, gives a charge, buys a share, leases to a related party or otherwise breaches, only that trust is tainted. A second, separate 13.22C trust held by the same fund keeps its exemption.

How do families use 13.22C unit trusts?

Four blueprints cover most of what we see. All examples are hypothetical, with round numbers.

Blueprint 1: Business premises with your family trust

Say a medical couple runs their practice through a company. A clinic building costs $2,500,000 including duty and costs. Their SMSF can put in $1,500,000 and their family trust $1,000,000.

• They set up a new trustee company and a 13.22C unit trust before signing the contract.
• The SMSF subscribes $1,500,000 for 60% of the units; the family trust $1,000,000 for 40%.
• The unit trust buys the clinic with no debt.
• Because the clinic is used wholly and exclusively in the practice, it's business real property, so the trust can lease it to the practice company. Market rent, independently assessed, is $150,000 a year plus GST.
• The practice deducts the rent. The SMSF receives 60% of the net rent (taxed at 15%, or 0% on the share supporting retirement-phase pensions) and the family trust 40%.

Blueprint 2: The fund buys out the family over time

Continue the example. Over the following years, as contributions and rent build up in the SMSF, it buys parcels of units from the family trust at their current market value, until it owns 100%.

Compare that with owning the clinic directly as tenants in common (60% SMSF, 40% family trust). For business real property, the fund could later buy the trust's share of the land, but duty would apply to each transfer of title. For residential property held as tenants in common, the fund could never buy the family's share, because section 66 bans buying residential property from a related party. In a 13.22C trust, the fund buys units, not land, so the buy-out works for both.

Blueprint 3: Residential property after the 10 August 2026 borrowing change

Say a couple in their late forties want a $1,200,000 house to rent out. With duty and costs it's $1,260,000. Their SMSF has $720,000 available; their family trust $540,000.

Before 10 August 2026, the fund might have borrowed the gap under an LRBA. For a new loan, it can't. Instead:

• The SMSF subscribes $720,000 for about 57% of the units; the family trust $540,000 for about 43%.
• The trust buys the house from an unrelated seller with no debt, and leases it through an agent to unrelated tenants at market rent. Nobody in the family ever stays there.
• Over the next few years the SMSF buys the family trust's units at market value, using new contributions.

Blueprint 4: Major works without LRBA limits

A property under an LRBA can't be changed into a different asset while the loan is in place. A 13.22C trust has no loan, so those limits don't apply. If a clinic needs $250,000 of new consulting rooms, the unitholders subscribe for new units at the current unit price and the trust pays the builder. The works must stay a capital improvement to an investment the trust holds. Building to sell is a business, and breaches the rules (see trap 5).

What about unrelated business partners?

If two unrelated families each hold exactly 50%, with equal control of the trustee company and no casting vote, and they aren't legal partners in a partnership, neither group controls the trust. It may then be an unrelated trust that isn't an in-house asset, and it can borrow. That's a different structure with a thin margin for error: one extra unit, a casting vote or a partnership between the families makes it a related trust, and its borrowing then makes the fund's units in-house assets.

How does a 13.22C unit trust compare with other ways of holding property?

How are 13.22C unit trusts taxed, and what about stamp duty?

• Income tax. The trust distributes its net income each year and the unitholders pay tax on their share. The SMSF pays 15%, or 0% on the share supporting retirement-phase pensions.
• Selling units to the fund. When the family trust sells units to the SMSF, it makes a capital gain or loss on those units, based on market value.
• Company dividends to the SMSF. If you use a 13.22C company rather than a trust, dividends from a private company are non-arm's length income (taxed at 45%) unless they are consistent with an arm's length dealing. Our NALI and NALE guide explains this.
• Stamp duty on unit transfers. Don't assume buying units is duty-free. In NSW and Victoria, landholder duty applies to a private unit trust when a person's interest reaches 20% or more and the trust's land is worth at least $2 million (NSW) or $1 million (Victoria). Queensland charges duty on unit trust interests in a different way again. Get duty modelled for the state the land is in, before any units change hands. Our state taxes service does this.
• Land tax. Unit trusts are treated differently in each state, and in some states a unit trust only gets the general threshold if it meets that state's fixed trust tests. The deed has to be drafted with both the SIS regulations and the state land tax rules in mind.
• Division 296. From 2026–27, members with total super balances above $3 million pay extra tax on a share of fund earnings. The fund's units still need a market value each 30 June. See our Division 296 guide.

What are the 10 traps that end a 13.22C exemption?

Almost every failure we see comes from an everyday habit that would be harmless in an ordinary family trust.

1. Unpaid distributions left owing. If the SMSF's distribution is left unpaid under an arrangement, the ATO can treat it as a loan from the fund (an in-house asset) and a borrowing by the trust (ruling SMSFR 2009/3). Pay distributions out promptly after year end, or formally reinvest them in new units at market value.
2. An overdraft, even for a day. A rates or insurance direct debit that pushes the account into debit is a borrowing. Tell the bank in writing that no overdraft is permitted and that payments beyond cleared funds must be dishonoured, and keep a cash buffer.
3. Paying a trust bill from a personal or business account. The trust then owes you money. Always subscribe for new units first, then pay the bill from the trust's account.
4. Buying a single share, ETF or managed fund unit. Spare cash stays in a bank account or term deposit.
5. Drifting into development. Building to hold is passive. Subdividing and selling, or repeated buy-develop-sell projects, is a business. The ATO's SMSF Regulator's Bulletin SMSFRB 2020/1 sets out its concerns.
6. Mates' rates. Related-party building work, management or services at a discount can make the SMSF's income from the trust taxable at 45%.
7. Issuing or transferring units at the wrong price. If the property is worth 50% more than when units were first issued, new units and transfers must reflect that. Get a current valuation.
8. A bank's "all moneys" security or cross-guarantee. When the family business refinances, banks often ask every related entity to guarantee. The 13.22C trustee must never sign.
9. Informal rent holidays or arrears for a related tenant. They can be treated as a loan to a related party.
10. Private use creeping in. An upstairs office converted into a flat, or the warehouse used to store the family's boat, can stop the property being business real property, which turns the related-party lease into a breach.

Watch out: Trade suppliers sometimes register a security interest on the PPSR against the trustee when they install solar panels, air conditioning or equipment. A registered charge over the trust's assets breaches the regulations. Check supply contracts before signing, and search the PPSR each year.

How do I set one up properly, and keep it clean?

Before signing a property contract

1. Review the SMSF trust deed and update the investment strategy for the concentration and liquidity risk.
2. Check the property's history: bought from an unrelated seller with no related-party ownership in the previous three years, or business real property bought at market value.
3. Have a specialist solicitor establish a new unit trust with a new trustee company, using a deed drafted for 13.22C (and for the state's land tax rules).
4. Open a bank account in the trustee's name with written no-overdraft instructions.
5. Issue units for cleared cash before any money goes out, including the deposit and stamp duty.
6. If a family co-investor is borrowing, check the security documents first.
7. Sign the contract in the trustee's exact name and pay the deposit from the trust's account.
8. For a related-party business lease, get a rent valuation and sign a formal lease.

The 30 June health check

How BPAG helps with 13.22C unit trusts

We prepare the accounts and tax returns for both the SMSF and the unit trust, coordinate the fund's independent audit with an approved SMSF auditor, and run the health check above every year so problems are found by us, not by the auditor.

• Design. Our super and SMSF agent works through the conditions against your actual plan, including the property's history, the lease and the family's funding, and our state taxes agent models the stamp duty and land tax for the state the land is in. Your accountant reviews both and sets out the steps for your solicitor and adviser.
• Unit pricing. Each issue or transfer of units is priced from a current valuation and the trust's net assets, and documented before money moves.
• Annual review. Bank statements, ledger, title and PPSR checks, distributions and rent, before the auditor sees the file.

The agents draft. Qualified accountants review and sign off, and nothing goes to you, the auditor or the ATO without a person approving it. The deed and lease come from a specialist solicitor, and the recommendation to invest your super this way comes from a licensed financial adviser. We brief and work with both. For how unit trusts work outside super, see our unit trust guide.

What to send us

• The unit trust deed and the trustee company's details
• The unit register and records of every unit issue and transfer
• Twelve months of the trust's bank statements
• Any lease, with the rent valuation
• The SMSF's latest financial statements and investment strategy
• Loan documents for any family member or entity that borrowed to buy units

If you're weighing up the options, start with our SMSF property guide, or talk to our SMSF accounting and audit team.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.