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Got property in your super fund? Here’s what the ATO is watching
Investors with property in their self-managed superannuation fund should be wary of strategies that the Tax Office is taking a closer look at.
Under superannuation law, it is possible to develop a property within an SMSF, and there can be substantial benefits to this approach.
However, investors who are exploring should be aware that the Tax Office, which regulates SMSFs, is closely watching that investors comply with the letter of the law.
Specifically, where investors are taking a knock down and rebuild approach, they should be aware that this can be considered running a business. This would breach what is referred to as the “sole purpose test”, which mandates that superannuation is not to be used to produce current-day benefits and is solely for the purpose of generating retirement income.
“While an SMSF is not completely prohibited from running a business, extra caution needs to be taken so that it doesn’t breach superannuation laws, including the sole purpose test,” said Townsends Business Lawyers senior solicitor Jeff Song.
Like any other investment, he said, the property development must be for the sole purpose of providing retirement benefits for the members.
“This is not always a simple question, but at the very least means you, or anyone related to you, cannot make personal use of the property or unreasonably benefit from the investment,” he said.
“If you are thinking of building a holiday house for your personal use, then look for another investment vehicle.”
He also explained that the investment must be allowed under the current trust deed and be in line with the investment strategy. A trust deed is essentially the foundation document of an SMSF and says what the fund is and is not allowed to do.
“Legal advice should be sought to see if any amendment to the trust deed is required,” he added.
