SMSF owns rented cabins on PPOR/residential land

Hi all,

I have a query re: an SMSF building portable cabins on the trustee's land which is their PPOR.

The entire property is now being sold, cabins included, and I am planning on apportioning CGT to the cabins only. Based on cost %. This is what our SMSF auditor has suggested. For argument's sake, the entire property is being sold for $2.2mil and the cabins have a cost of 136k.

The fund has never been registered for GST however now I am thinking this could pose an issue.

There is only one contract encapsulating the entire property sale.

Is there anything that needs to be done prior to the contract being finalised/signed?

 

There should be separate contracts if the owners are different. Have you sought legal advice?

 

I haven't, this is all driven by the trustee and their personal accountant (I only manage their SMSF).

 

How could A contract to sell something owned by B
It would have to be some sort of agency agreement, a trust, an attorney or a related party acquisition!
If you are the fund's accountant I would suggest you recommend them to speak to a lawyer about it and keep your distance on the legal side to protect yourself.

 

A SMSF cant build on a related party members land. If the cabins are portable and intended for sale CGT doesnt even apply and GST may apply to a mixed sale. But if fixed there is a serious concern. There likely is a taxable supply from the smsf to you - A breach and subject to GST perhaps. And assets arent in the title of the smsf - breach. Sole purpose test - breach. Adviser liability under s55 SISA is a real possibility.

Based upon a single contract the SMSF has breached its covenants IMO.

i would seek immediate legal advice from DBA Lawyers Melbourne. Their advice should also address the contract, smsf, and personal tax. incl GST etc

I dont agree that the entire sale is subject to main residence exemption excepting the cabin cost. The MRE may have been severed and much of it lost retrospectively. The smsf involvement may create a major concern to that. Its possible that there has been a contribution to the smsf (TR 2010/1) if the land adjacent to the cabins is smsf property. This could give rise to excess contributions issues, taxable supplies and more.

 

Thanks guys.

The cabins are portable (Tiny Home).

 

Should be sold as a seperate sale directly by the smsf NOT as one contract. Different legal owners etc. The market value of the cabins should be determined and used and adjusted v a total agreed price. GST registration by fund > threshold but it may also claim GST on cabin costs. Threshold trigger for cabin income subject to GST ?

If the cabins are element of a enterprise (eg rented out) the main residence assumption may fully or partially be incorrect. No lease, no share of costs to be claimed. I assume rent is for cabin use and nothing else as there are two entities.

And land tax clearance may be a issue for legal advice. State ? In NSW it limits the land to the owners home plus ONE other dwelling unit. Any more and its a pro-rata area issue

Edited : I realise you are a practitioner