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In this scenario the SMSF owns a residential property which has an LRBA on it, it is a sole director/member fund. Originally property was leased to 3 unrelated people on separate leases, the SMSF found this too hard to manage so the spouse of the sole member/director started managing it through his rental property management business. This seems OK so far provided it is all arm's length and the business is legitimate. However, now they propose to lease the property directly to the rental property management business who will then on lease to the tenants and manage them directly, collecting income via lease he holds with the tenants, and then pay the SMSF a fixed amount in return which is a slightly lower figure but the SMSF has security of income. My thoughts are this is not going to fly as the residential property is then being leased to a related party and the purpose of use is residential underlying this. Does anyone have thoughts here? Any help greatly appreciated.
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Thanks for your reply :)