DA application on a SMSF property?

Hi,
Apologies if this has been covered before, the search function didn’t show anything.

I am considering purchasing a house under a SMSF. I would be required to get a DA to have the use approved for commercial use as I would like to then have my business lease the property.

I understand improvements made to the property can’t ‘alter the character’ of the property as I intend to get a loan within the SMSF to purchase it. But.... is getting a DA to change the use of the property to commercial permitted under SMSF rules on borrowed funds?

TIA

 

There is a tax ruling on this which you could find and read, otherwise get legal advice.

 

How can a resi property obtain a council DA for commercial use? Check zoning first. Council would require a DA for use to comply with zoning and other requirements.

The real test is that of the use of the property. It MUST meet the business real property use test. This is described in a extensive ruling And the lease and the parties to the lease and the USE of the premises must all comply - see para 20. Your use of the premises must be for commercial use not just a commercial lease. You cant make a sham arrangement to use resi property. It wont pass these tests. Sole purpose tests and others apply too.

Lenders likely wont touch it if its not an existing commercial property and you advise the expected use or may impose a lower LVR. The problem they may have is that they wont want to lend on a possible council DA. The other problem relating to that is the fund investment strategy.

 

I assume that this is a permissible use of the property (with council consent) - possibly home occupation but on real intention to inhabit the premises (breaching the SMSF guidelines).

Can a DA be lodged as a condition of the offer to purchase? Achieving the change of use will then obviate the conditions for the SMSF and satisfy the lender prior to the property going unconditional?

 

Yeah I probably should clarify the situation. It’s currently zoned residential and permitted use is residential but it’s close to town centre and apparently can be reasoned to commercial. It will be a legitimate commercial use as my company will run a health clinic there. No one living there. But want a DA for commercial use... but the SFMA will need to buy it as a residential. Hope that makes more sense

 

Is it not easier (less red tape) around buying something with a commercial use? Lending will possibly be restricted once rezoned to commercial anyway.

Can you not apply for a 'home occupation' - this is often used to skirt around the issue of rezoning for many professional medical users eg doctors' surgeries, physios, chiropractors, plastic surgeons.

 

Hi there

This is the relevant ruling for BRP https://www.ato.gov.au/law/view/document?DocID=SFR/SMSFR20091/NAT/ATO/00001&PiT=99991231235958

Cheers Ivan

 

The key element relates to the property being used wholly and exclusively in one or more businesses (whether carried on by the entity or not)

If in doubt seek legal advice on the requirements to comply. Para 20-39

One further issue which is outside that ruling is the issue of a arms length lease and satisfying the auditor of the nature of a non-arms length lease or lease-type arrangement. A solicitor may assist with drafting a simple document. It can be prudent to get a valuer to determine what the market value for rent may be.

 

Its a public ruling.

 

What is your point paul.

 

Binding Private Ruling = BPR

BPRs are only reliable for the taxpayer concerned. This ruling applies as law.

 

BRP = Business Real Property - enjoy your day

 

I call them PBRs - Private Binding Rulings. ATO appear to now call them 'private advice'.

 

I'm referring to the shortcut for Business Real Property = BRP - not rulings.....i.e. "This is the relevant ruling for BRP"

If you are uncertain be free to send an email to the ATO and they respond in 28 days Request for SMSF specific advice

moving on....

 

Ah yep....WTF

 

Absolutely...and it looks like this may be the only way I can do it. It’s just the suitable property we have found already isn’t commercially zoned.... perhaps that makes it less suitable