Hi Campbell

Business Real Property (BRP) can be acquired by a Fund from a related party.

BRP defined under section 66(5) of SIS as:

""business real property" , in relation to an entity, means:

(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."

The ATO has issued a ruling and they provide guidance re Crown land at:

SMSFR 2009/1 SMSFs: BRP for the purposes of the Superannuation Industry (Supervision) Act.

Refer:

"What is 'Crown land'?

85. 'Crown land' is land which is vested in the Commonwealth, a State or a Territory of Australia that is subject to the provisions on administration and dealings set out in the relevant statute in each jurisdiction. 'Crown land' does not include any estate or interest that the Commonwealth has granted to any person.[37]

86. The term 'Crown land' is normally reserved for land that is governed by a group of statutes collectively referred to as Crown land statutes. Each Australian State and Territory has one or more of these statutes.[38]

87. In the Commissioner's view, 'Crown land' is real property for the purposes of the business real property definition. A leasehold interest in 'Crown land' is therefore an eligible interest under paragraph (a) of the business real property definition, despite the exclusion of such interests under paragraph (b) of the business real property definition."

Also refer:

"What is 'an interest that is capable of assignment or transfer' in Crown land?

103. To be an eligible interest for the purposes of the business real property definition, an interest in Crown land that is not a leasehold interest, must be capable of being assigned or transferred.

104. For an interest to be assigned or transferred, all rights and liabilities that exist under the interest must be capable of being transferred to another party.

105. To determine whether a right or interest in Crown land is capable of being assigned or transferred, it is necessary to examine the instrument that gave rise to the interest. This is because interests granted in Crown land are created through statutes that specify the nature and extent of the interest.[47] Examples of interests in Crown land that may be capable of assignment or transfer, depending on the relevant legislation, include pastoral, agricultural and mining leases.[48]"

The trustees should get legal advice in relation to whether their Crown land will meet the definition of being BRP. Crown land is regulated by each state's own government legislation. If other auditor's have experience with Crown land it would be great to get their views.

In relation to the related party LRBA & whether it would comply with SIS and the ATO's requirements the Trustees should refer to PCG 2016/5 - Income tax - arm's length terms for LRBA's established by SMSF's.

From this PCG they should consider that "The ATO accepts that an LRBA used to acquire real property, or to refinance a borrowing used to acquire real property, is consistent with an arm's length dealing if the terms of the borrowing are established and maintained throughout the LRBA" when:

1) prescribed rate is used (5.1% for 2021/22)

2) maximum term is 15 years

3) loan value ratio (LVR) maximum is 70% (in your example you have 74%)

4) security is a mortgage over the property

5) monthly principal & interest is paid

6) written loan agreement is prepared

Thanks

SMSF AAA