Superannuation is a highly regulated area, with many ‘do’s and dont’s’ from the ATO. But a recent court decision could have profound implications for what we can do with property held in Super.
A father was able to lease to his daughter a property owned by his self-managed superannuation fund (SMSF) without breaching the sole purpose test, a court found.
The sole-purpose test requires super assets to be managed exclusively for the purpose of providing retirement benefits and the Related Party test, stipulates that an asset of an SMSF cannot be used by a related party (including the family of the member… excluding Business Real Property).
The decision may have profound implications for the leasing of SMSF properties to related parties, an arrangement often considered off limits.
The case was brought to court expressly to test the law. In it, a university student leased an apartment partly owned by her father’s SMSF.
Despite this, the judges were persuaded that the sole purpose test had not been breached by factors such as the property being acquired and leased to others before the daughter’s tenancy.
The leasing of the property was also handled by Student Housing Australia, which was unrelated to the SMSF – which meant that the SMSF owned not a specific apartment (i.e. strata title) but rather an interest in the pool of rental income regardless if a specific unit was leased or not. It would seem that the property in question may have met the Business Real property definition and as such, it became an exempt asset allowing a related party transaction and commercial terms.
“If, however, the lease were not at market rent, then an inference would probably readily be drawn that the fund was being maintained for a collateral purpose, namely to provide discounted accommodation to a relative of a member of the fund, contrary to the sole-purpose test,” a court judgment says.
The ATO may appeal this decision, so we are entering untested water. But it’s worth talking to Chan & Naylor Wealth about how it might relate to your Super fund.
Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with any change to superannuation as well as any other business or personal tax enquiry that you may have. Contact us today.