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Anna Han Willetts

Oct 21, 2022

in SMSF Technical Forum

Anna Han Willetts

Oct 21, 2022, 2:15 PM GMT+11

Can a SMSF purchase a residential freehold property and lease to the member's company as NDIS residential property and receive NDIS rental rate which could be $2K - $3K per week? The member has 90% ownership of the company which is a NDIS provider in disability support space. The property will be wholly used by the member’s business to provide accomodation and respire care to the participants.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Oct 24, 2022

Hi Anna

My view is yes the SMSF can rent the property to a related party. This is on the basis that the property is used wholly and exclusively in the running of a business (& the rental is received on an arm's length / commercial basis).

A SMSF can rent a property to a related party under SIS section 66(1) where:

"the real property is used wholly and exclusively in one or more businesses".

Section 71 of SIS states that an in-house asset does not include a lease arrangement between a Fund and a related party if the property is business real property.

The ATO has a great ruling on this topic with examples and 2 of these are below.

Refer:

"SMSFR 2009/1 Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993"

Example 14: Residential property held in a property investment business

279. Mr Wood owns 20 residential units that are leased to long-term residents. Mr Wood manages and maintains the flats on a full time basis living on the income generated from the leases. The units are not mortgaged.

280. Mr Wood would like his SMSF to acquire some of the units rather than sell the units to a non-related party.

281. The scale of the operation together with the elements of repetition and purpose indicate that Mr Wood is carrying on a property investment business.

282. Even though the tenants use the properties for their own private or domestic purposes, this use remains incidental and relevant to Mr Wood's property investment business. Consequently, Mr Wood's interest in the property on which the units are built is business real property. Provided the acquisition takes place at market value, the units may be acquired by the SMSF without contravening the related party asset acquisition rule in section 66.

"Example 21: Doctor's surgery in residential premises

302. Dr Mary owns a house used exclusively by her medical practice.

303. Dr Mary is a member of the Yianni SMSF. Dr Mary, in her capacity as trustee of the SMSF, wants to acquire the house for market value and then lease it back so the medical practice can continue to operate from the house.

304. Although the house was built to be residential premises, it is not used as such. The real property is used wholly and exclusively in Dr Mary's medical practice business. For the purposes of the related party asset acquisition rule in section 66, the property is business real property of Dr Mary. Once acquired by the Yianni SMSF, it is also business real property of the fund and is therefore not an in-house asset of the SMSF."

Please refer to the ruling for the above and other examples.

Thanks

SMSF AAA