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I have a probable in house asset issue here, that id like a second opinion on please. Nuances in the detail make it less than crystal clear.
Case Facts
Individuals purchased block of land approx. 200 acres in size with a house on it from an unrelated party in 1975
They immediately moved into the home located on this land they purchased and were permanently residing in it.
They also immediately started a partnership business with the purchase of 30 cows where they ran the farm business part time whilst living in the house.
In 1987, one of the individuals gained employment externally with ‘ICM’ - an unrelated entity.
In 2003 the business that the individuals were running ceased. They instead began leasing the farm land to an unrelated party ‘ICM’, whilst they were also living in the house situated on this 200 acre land.
In 2005, the individuals employment with ICM ceased in 2005. But ICM was still leasing the bulk of the land from the individual.
In 2009, the individual and his wife setup the super fund (became trustees of it)
In 2012 they also retired from all other external jobs, but they continued to live in the building situated on the rural land they owned in their personal names. They continued leasing the rural farm land to unrelated parties.
In 2015, their SMSF bought the entire rural land (200 acres) including the building from themselves as individuals for $520,000.
From that point on, they as individuals had put in place an arm’s length lease with their SMSF, and were paying their smsf rent for living in the house on that rural land.
Is this an In house asset issue or otherwise another sisa / sisr issue?
Hi Mark
In 2015 the SMSF acquired the land from the members.
The purchase was only allowed if the property if at that date the was "business real property" (BRP) as per section 66 of SIS.
Per SIS in relation to BRP it states that:
"real property used in one or more primary production businesses does not cease to be used wholly and exclusively in that business or those businesses only because:
(a) an area of the real property, not exceeding 2 hectares, contains a dwelling used primarily for domestic or private purposes; and
(b) the area is also used primarily for domestic or private purposes;
provided that the use for domestic or private purposes referred to in paragraphs (a) and (b) is not the predominant use of the real property."
That is the property may meet the definition of being BRP if the property was used in a primary production business and there is a residential dwelling on it.
An in-house asset (IHA) does not include a lease of an asset to a related party if the asset is business real property. Further there is the same exemption for land that has a primary production business on it and there is a residential dwelling on it (as detailed above).
You need to review if the property has / is being used in a primary production businesses and that it meets the criteria re the size & primary purpose requirements.
Thanks
SMSF AAA