Parent's SMSF IP rented out to son, legal or illegal?

Discussion in 'Legal Issues' started by bonanzawealth, 6th Aug, 2015.

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  1. Scott No Mates

    Scott No Mates Well-Known Member

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    This'd fit the bill under the current cap of $1.6m - linky, linker, linked even If you only had $1m tucked away.

    I'm sure they're all lovely towns too.
     
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  2. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Last edited: 16th Sep, 2018
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  3. alicudi

    alicudi Well-Known Member

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    Hi

    I am a little baffled that it had to reach this stage, my advice is that this scenario is possible so I don't know why the original judge deemed it a breach of the sole purpose test?

    I wonder what the legal costs would have been?

    Regards,

    alicudi
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    Alot more than renting to a non-related party.
     
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  5. alicudi

    alicudi Well-Known Member

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    Hi

    Yes I agree, it may have even been more than the value of the student accommodation!

    Regards,

    alicudi
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    the rent on that property was something like $150 pw...
     
  7. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    Good point about the rent being so low it would pale in comparison to the legal fees. Really not worth being the trail-blazer that tries to step outside the boundaries of what is already allowed by law.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    But the SMSF member turns out to be an employee of the business promoting these student accommodation properties.
     
  9. alicudi

    alicudi Well-Known Member

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    Hi

    I am just taking a guess here, but I am thinking that this particular SMSF didn't want to have a breach placed against it and that those involved didn't want to have the potential issue of been disqualified from operating an SMSF anymore. They probably did see it worth it to take the case further.

    All SMSF's must operate under strict guidelines and for those that are found guilty of a breach and/or continually don't follow the strict rules "may" in fact lose the opportunity to operate a SMSF and all of the financial benefits that go along with it. This advice I received is from the same source that advised me that student accommodation could be leased to immediate family members which I posted in this thread several years ago.

    Regards,

    alicudi
     
  10. alicudi

    alicudi Well-Known Member

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    Hi

    That's the interesting part of this case and is probably why the original judges decision told them it couldn't be done.

    Regards,

    alicudi
     
  11. Scott No Mates

    Scott No Mates Well-Known Member

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    So that then raises the tax issue - does the provision of accommodation then attract FBT or is the employer sufficiently removed from ownership of the SMSF?
     
  12. Stoffo

    Stoffo Well-Known Member

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    Maybe the OP parents could buy a property (possibly commercial/rural) and retain the son as a "caretaker" ?

    Have seen this done once, by a person who went and lived at the property that was his own SMSF, is was 5-7 acres close to town with a shed he converted to live in.
    No idea if it was legal, but when questioned he always said he was the caretaker :rolleyes:
     
  13. Mike A

    Mike A Well-Known Member

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    Recent case. Aussiegolfa. Doesnt breach sole purpose test.

    Does breach in house asset test if over 5%
     
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  14. Dean Collins

    Dean Collins Well-Known Member

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    Terry, recent court case that says nope not the case as long as market rate.

    Court case recently though the daughter did have flat mates, never read the ruling to understand if was important to the decision.
     
  15. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    @Dean Collins I believe this thread originally started a few years ago. @Terry_w 's mention of breach was posted in 2015, quite some time ago and before the recent court case/s . ;)
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That court case is not a precedent that the trustee can rent to relatives either.
     
  17. Trainee

    Trainee Well-Known Member

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    Why make it so complicated anyway? Your brother rents somewhere else, your parents buy the smsf ip and rent that out. Have a will you all agree on. Is this just someone thinking “renting is dead money” and “theres extra sitting in super so”? Sometimes simple is best.
     
  18. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The reasons that the SIS Act was written the way it was goes back to the prior laws - Occupational Superannuation Standards. The Govt in the early 1990s wanted to bring in the concept of SMSF but knew people would misuse the rules unless they were tight. And I reckon they considered most things people may do. Except they left some issues out which are now risks of a SMSF eg No supervision and court / tribunal, no insurance re fraud etc.

    So SMSFs are strict and contain anti-avoidance rules. Dont always make sense but not all law makes sense.

    Most silly ideas get asked about bending SMSF rules and in most cases its black and white. Nearly always its someone who sees $XXX,000 in their super and wants to get at it. This is a great reason why a trust structure was chosen for super. Super isnt your money just because the account has your name on it !

    I would argue that most (not all) of the laws seem to limit most dodgy efforts but it doesnt stop people asking. I wish I had $100 for each time I was asked about related party leases of resi property or buying a resi property from a relative / member.
     
  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Ownership of a farm and operation of a farm are different things. Farms can be owned by a SMSF including a residence (sometimes) and its not subject to FBT if the SMSF isnt a employer. Its a owner of property. SMSFs shouldnt normally operate a farm.
     

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