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Kathryn Carberry

Sep 01, 2022

Leasehold owned by an SMSF

in SMSF Technical Forum

An SMSF where one of the members is a doctor has entered into an arrangement where the SMSF holds the head lease on a building used as a medical centre. The SMSF then has leases in place with various medicos and service providers (eg pathology) The building is owned by an unrelated party.

Is this arrangement ok?

Currently the leasehold is not recorded as an asset of the SMSF. Should a value be accorded to the leasehold in the accounts of the SMSF

3 answers0 replies

Comments (3)

Kathryn Carberry

Sep 01, 2022

To the best of my knowledge the building is NOT owned by a related party

I don't believe there was an acquisition cost for the lease but rather a lease agreement has been entered into between the SMSF and the owner of the premises

The whole of the building is Business Real property

I have requested copies of the head lease and the sub-leases. It may be the case that one of the sub-leases is with a member or associate of the fund

The SMSF receives income from at least 8 separate sub-leases

I believe that the lease should have a value based on future earnings. I am waiting to receive a copy of the lease so as to know the length of the lease and will speak to the accountant regarding valuing the lease

As the head lease is not with a related party I did not think there were NALI and NALE issues but was hoping for some guidance on this

THE AUDITORS INSTITUTE

Sep 01, 2022

Replying to

Hi Kathryn

Thanks, the Fund has leased a property from an unrelated party & then it has on leased the property.

The Fund should be able to do this if it is done on an arm's length / commercial basis & the related party rules are followed. The Fund's investment strategy would need to allow for it & you would have to check that it complies with the sole purpose test.

If it is done on a commercial basis there should not be any NALI / NALE issues.

Yes you would need to look at the lease agreements and net income position and assign a value to holding the head lease.

As I noted I have not come across this before so if any members can give their view that would be appreciated.

Thanks

SMSF AAA

THE AUDITORS INSTITUTE

Sep 01, 2022

Hi Kathryn

I have not come across this before & I do not think I understand fully what has happened.

The queries I have are:

1) How did the Fund acquire the head lease & who from? (Was it allowed to acquire it if from a related party?)

2) Did it acquire it on a commercial basis? How has the cost been accounted for?

3) Is the Fund leasing an asset to a related party? If yes is that asset business real property?

4) If the SMSF holds the head lease does it receive income re it?

5) If the SMSF holds the head lease and receives income, it has a value, so why is it not recorded in the Fund's accounts as an asset (& what is its value)?

6) Are there any NALI / NALE issues?

If other members can comment on this that would be helpful.

Thanks

SMSF AAA