Author: Jason Roccasalvo, Partner, TAG Financial Services
Of recent times, we have seen an uptake in SMSF trustees enquiring about using their super to participate in property development.
The ATO have recently clarified their stance on SMSF and property development in their bulletin SMSFRB 2020/1.
The ATO have reinforced the position that they are concerned that an SMSF may not be acting on arms length in relation to:
- The land purchase;
- Complying with related party acquisition rules;
- Valuation of any services provided by related parties;
- Terms of a borrowing (if any borrowing is needed) and the compliance with SIS;
- Returns and capital requirements.
Further, the ATO are concerned where the circumstances may transpire to create an arrangement to help the members circumvent contribution caps or transfer balance accounts. Additionally the ATO are concerned with compliance with SIS in the following areas:
- In house asset rules;
- LRBA’s and SIS compliance;
- Non arms length income and expenditure;
- Ungeared unit trusts (13.22 trusts);
- Financial assistance to members
- Sole purpose test
Specifically, the ATO re-confirm their approach in relation to Joint Venture Arrangements in that the return to an SMSF must reflect fairly the Fund’s input (ie concern there is circumvention of contribution/investment rules).
However, of particular note is the ATO statements regarding an SMSF contribution of cash to a joint venture. From the bulletin:
“where the SMSF has only provided a capital outlay for the arrangement, and has no rights other than a contractual right to a return on the final investment, we would be concerned that they may instead hold an investment in or loan to the other party, depending on the terms of the joint venture agreement.”
It is therefore imperative that Trustees engage advisers before entering into such arrangements. Untangling complicated transactions are timely, difficult and costly exercises.
Time and money spent in the planning or “idea” stage pays itself forward ensuring compliance down the road.
Consulting Project
We can provide advice in this area. Our advice is quoted upfront for your authorisation before commencement. If you would like to discuss a project contact us on 03 9886 0800 or email super@tagfinancial.com.au.
Technical Updates for Accountants
Receive Super Updates, webinar invites, seminar information and much more! Visit www.tagfinancial.com.au/join-our-mailing-list.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.