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Rimal Prasad

Feb 17, 2022

Demountable home

in SMSF Technical Forum

I needed some guidance in-relation to SMSF buying a demountable home and renting it out to to earn rental income.

The facts are:

SMSF will buy the home in cash from the funds it has. Then put that home on a block of land which is owned by a trust within the family group.

The SMSF pays rent to the trust for the use of land at arm’s length.

The SMSF receives rent from renting the home.

The tenant wont be related to SMSF nor related to the trust.

Other than sole purpose test and if the investment is allowed by the investment strategy I have a feeling there are more issues to consider such as the related party being deemed to have acquired the home from the SMSF because the owner of the land is the related trust.

Any comments would be appreciated thanks.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Feb 17, 2022

Hi Rimal

I have not come across this issue before so other members views would be good to get.

My view is the main other issues to consider is section 109 of SIS & the NALI / NALE (non arms length income / expenditure) rules.

Re Section 109 the investment must be made on an arm's length basis so the Fund must pay an arm's length rental for the land that the demountable house is on & there must be a lease agreement in place. The NALI / NALE rules would also require an arm's length rental for the land the the demountable house is on & there must be a lease agreement in place. Refer LCR 2021/2 for guidance on the NALI / NALE rules.

If there is a lease agreement in place re the land & the usage of the demountable house then the related party would not be seen as having acquired the house.

Thanks

SMSF AAA