Super buying NDIS property off Trust fund

Just running an idea past the guru’s here . I think it’s probably not kosher but thought I’d ask .

I know a super fund can’t buy a residential property of a related party , but in some circumstances can buy a commercial property of a related party .

We have an SDA property in a family trust .

This leased out by us via a head lease to our SDA provider ( 10+10 ) who then lease rooms to the participants . Obviously not a standard residential lease but from the ATO / Super view point , does that make it a commercial property ?

If that isn’t clear at the moment , could we get a private ruling on that point .

If it is classified as commercial property , can our super fund buy it from our family trust ?

IF it can , does the transaction have to be at a market rate ?

I wouldn’t want the super to pay above market price , but can we sell it at under market price ?

It’s in Queensland so I’m aware that stamp duty on the sale would need to be calculated at a market value .

Yes , we will get appropriate advice .

@Terry_w , @Paul@PFI , @RPI
@Redwood

cliff

 

You should read the tax ruling on 'business real property' first and then the trustee of each trust should seek legal advice. A trustee would be breaching their fiduciary duty if they sold under market value. There may be some legal issues on the super law side as well.

 

Ok , so sale would need to be at market value if it’s possible .

cliff

 

@Terry_w

ok , so if the selling party is a trust , it can’t work at below market .

If it was us as individuals selling it at below market , is that feasible , or would that be perceived as an additional contribution , possibly breaching the cap on additional contributions ?

It certainly has the potential to be abused .

cliff

 

You could sell at any price - if you owned it.

But could the SMSF buy it at below market value? Yes it could, but the value under which it is sold might count as a contribution.

 

The ATO ruling on the real business proprty concessions is complex. It looks at the USE of the property immediately prior to the sale. Not the lease arrangements. Hence the SMSF may own a property that is in use for residential occupancy and this fails the s66 exemption despite some apparent commercial rents being received from the SDA provider. I would be seeking specialist legal advice. I recommend DBA Lawyers.

The sale is likely governed by the market value substitution rule and GST rules which consider the equivalent. A valuation of the property is needed for duties purposes in an event.

Also consider CGT.

 

Predominately our clients have had advice that it is commercial in nature, as far as GST etc is concerned. I have seen managed fund get same from ATO, but not an individual as yet.

 

@geoffw

We have the funds to develop one within our SMSF and are going through that process at the moment .

Just looking at other options . The one we’ve already built is outside our Super , and while we happy to keep it there , we are looking at our options .

Obviously we can borrow to build outside super but you can’t do that with super , but within super you can borrow to buy an established property so wondering if there is a way of structuring things to develop a site outside super , then the super buys it .

@RPI , @Terry_w , @Paul@PFI , I assume if we wanted to find out we’d need to apply for a private ruling . Never done that before . Is it a long / expensive process ?

Cliff

 

I just did a private ruling for a client and it took 6 months to get a response.
Not sure you would need one for this.

 

If your accountant works closely with your SMSF auditor then that would be my first point of call, seeing if they can provide advice.

 

The risk for error rests with the taxpayer. I would be seeking smsf specialist legal advice on the matters concerning SMSFR 2009/1 and the application to a proposed contract.
Neither an accountant or auditor can provide confirming advice concerning legal matters. The s52 SISA problem is a massive risk to undertake. Tax advisers are unprotected for advice concerning SISA as it is not a taxing law.

s55 of SISA would potentially hold all advisers liable to actions for damages if the advice is wrong. And they may be uninsured.