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I have a client who has asked if a JV between a SMSF and a related trust to develop property would contravene any SIS legislation. SMSF has land, and no cash. Trust has cash to pay the builder. the construction will be by an unrelated party. I cant come up with any problems. Has anyone seen this structure before?????
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Hi Brendan
I cannot see any problems as long as it is properly structured and the SIS rules are followed.
A great reference is an ATO SMSF bulletin.
Refer SMSFRB 2020/1 Self-managed superannuation funds and property development
Refer:
https://www.ato.gov.au/law/view/document?docid=SRB/SRB20201/NAT/ATO#H71
Paragraphs 71- 76 specifically refer to joint ventures.
As a positive the construction will be done by an unrelated party so the risk will be reduced that the rules re acquisition of an asset from a related party will be breached.
The bulletin states re an SMSF & a joint venture (JV) arrangement of property development:
1) care must be taken to ensure it is a true joint venture,
2) income from the JV must not be excessive to avoid the income being treated as non arm's length income (NALI),
3) JV investment needs to be properly structured so an not to be deemed to be an investment in a related party & become an investment in an in-house asset.
Preferably the trustees would get professional advice that the proposed joint venture agreement / structure will comply with the SIS legislation.
Regards
SMSF AAA