.png)
A SMSF has purchased permanent water entitlements from a related party, the transfer lodged with the Victoria water register through a water broker. Are water entitlements considered a listed security and therefore exempt under s66?
top of page
THE AUDITORS INSTITUTE | FORUM
Archived Forums
When you become a member of The Auditors Institute, you immediately gain access to expertise, advocacy for your profession and peace of mind.
Ask a question in our members-only forum or use the search function to find prior technical discussions on your topic. You can expect a response within 24-48hrs.
Disclaimer
The forum is made available by The Auditors Institute Ltd for the benefit of it’s members only, and its primary purpose is to facilitate education, training, and discussion between members. The information and answers provided within the forum are of a general nature and do not consider any specific circumstances, objectives, financial situation or needs related to the matter/s raised. The responses should not be construed as financial advice, and each Member should seek their own professional advice before making any decisions. The Auditors Institute Ltd and its representatives are not responsible for any actions taken based on the information provided in the forum.
bottom of page
Hi Lacey
A SMSF under section 66 of SIS can acquire assets from a related party being:
1) listed shares, or
2) business real property.
Water rights are not listed shares & I note as per SMSFR 2009/1 SMSF's business real property for the purposes of the SIS Act that:
"Example 10: Water Licence - not an eligible interest in real property
266. The Buckley family own a farm that consists of an appreciable area of land on which the family company conducts a primary production business. The family company also owns a water access licence entitling it to draw a specified amount of water from a nearby waterway for irrigation purposes.
267. Irwin Buckley, a trustee of the Buckley SMSF, proposes that the SMSF purchase the farm and the water licence at market value and lease them back to the family company.
268. The freehold interest in the farm is business real property at all times. Assuming the proposed acquisition takes place at market value; the farm may be purchased by the SMSF and leased back to the family company without contravening the related party asset acquisition rule or the in-house asset rules.
269. However, the water access licence is not an eligible interest in real property. It therefore cannot be business real property of any entity. To the extent that the proposed transaction will involve the sale of the rights under the licence and the granting back of those rights to the family company, the related party asset acquisition rule in section 66 will be breached and the licence will be an in-house asset of the SMSF."
Based on the above my view is that water rights are not considered to be business real property and cannot be acquired by a SMSF from a related party.
I do not have experience in water rights so if other auditors want to comment that would be appreciated.
I note there were also ATO interpretive decisions (ID 2004/229 & ID 2004/230) that a water license was not business real property and could not be acquired by a SMSF from a related party. I understand these ID's were withdrawn. I do not know why they were withdrawn.
I would ask the trustee if they obtained any legal or ATO advice in relation to the purchase of the water rights.
Thanks
SMSF AAA