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Campbell McCart

Sep 12, 2022

CARAVAN RENTAL BRP

in SMSF Technical Forum

Jane and Lance are members of the LaJan SMSF. They are also directors of Rent my Van Pty Ltd.

The company is in the business of renting out caravans.

Questions:

Can Lajan SMSF buy a caravan and put it in the rental pool of Rent my Van Pty Ltd. The caravan would be purchased from an unrelated entity. There would a commercial lease in place for $10,000 per annum, rent to paid quarterly at $2,500 each payment. The rate of rent is based on commercial terms. The company is responsible for renting out, cleaning and minor maintenance of the caravan while in the rental pool. The caravan would be kept at the company premises. The members of the smsf would not have any personal use of the caravan.

2. Would the caravan be classified as business real property? It is similar to commercial property that is leased to a business that is operated by the members of the smsf.

My opinion is that it is an acceptable investment for the smsf when conducted on an arm's length basis.

Any other problems that need to be identified, prior to proceeding?

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Sep 12, 2022

Hi Campbell

Section 66 of SIS defines Business Real Property (BRP) as:

"(a) any freehold or leasehold interest of the entity in real property; or

(b) any interest of the entity in Crown land, other than a leasehold interest, being an interest that is capable of assignment or transfer; or

(c) if another class of interest in relation to real property is prescribed by the regulations for the purposes of this paragraph--any interest belonging to that class that is held by the entity;

where the real property is used wholly and exclusively in one or more businesses (whether carried on by the entity or not), but does not include any interest held in the capacity of beneficiary of a trust estate."

A caravan is not "real property" so a caravan will not meet the definition of being BRP.

If a caravan is rented to a related party it will be an "in-house asset" and the 5% IHA rules will apply.

You should also consider the collectable and personal use asset rules as they include "motor vehicles". I assume a caravan is not deemed by the ATO to be a "motor vehicle" but if they are to proceed it would be prudent that this is confirmed with the ATO.

Also prior to proceeding they should consider the Fund's investment strategy & the sole purpose test.

An article re a SMSF & purchasing & renting a caravan can be found at:

Thanks

SMSF AAA