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Simon Manning

Mar 01, 2022

Prepaid Rent- Before Purchase Settlement

in SMSF Technical Forum

Can a Super fund accept a Pre - payment of Rent for a Factory it is about to Purchase.

A deposit is paid and just before settlement a Prepayment of Rent is received which helps pay the final Payment. The Rent is from a Related Party, Rent is at Commercial Rates, The Factory will be used in the Members Business.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Mar 01, 2022

Hi Simon

My view is that the SMSF can receive the rent prior to settlement as long as this is consistent with a transaction that could & would occur between 2 unrelated parties.

There is a risk that if the Fund receives the rent in advance of settlement then it has breached section 109 of SIS if it has not acted on an arm's length basis (as the Fund has received income prior to owning the asset). That is the trustees will need to document that this transaction has been done on an arm's length basis. There would need to be documentation to show that the transaction was agreed to by the trustees of the Fund, the vendor and the entity that is leasing the property. The transaction has been entered into to facilitate the purchase of the property by the Fund.

There is a risk that rental income could be deemed to be NALI and then be taxed at 45% if what is received is more income than what would be expected from an arm's length transaction. It could be argued there is no NALI in your example as the SMSF has not received more income as it has just been received earlier.

Thanks

SMSF AAA