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Fractional property investment – ATO guidance on approach

Guidance for SMSFs on our approach to the sole purpose test for fractional property investment products.

Last updated 20 November 2019

This guidance is for self-managed super funds (SMSFs) considering the sole purpose test implications of fractional property investments following the recent Full Federal Court decision in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2018] FCAFC 122External Link.

As indicated in our Decision impact statement for that case, a trustee of an SMSF could potentially breach the sole purpose test by investing in a sub-fund of the DomaCom Fund if the facts and circumstances indicate the SMSF was maintained for the collateral purpose of providing accommodation to a related party.

This is consistent with our long-standing views in SMSF Ruling 2008/2.The ruling states that the purpose an SMSF is maintained for is determined by considering all the facts and circumstances surrounding the trustee’s behaviour.

To address this, DomaCom Australia Ltd (DomaCom) have updated their product requirements to include a ‘Sole Purpose Test Declaration’ for SMSF trustee investors.

By signing this declaration, the trustee agrees to avoid behaviour that may be of concern to us relating to a breach of the sole purpose test. This includes avoiding:

  • entering into an investment based on its potential to provide related-party accommodation
  • influencing DomaCom or a relevant property manager to engage a related party as a tenant of the property
  • influencing a related party to become tenant of the property.

A sample copy of the declaration can be found in DomaCom's ASX 31 October media release (PDF 377KB)This link will download a file.

Our compliance approach for the DomaCom Fund

We won't undertake compliance activities where an SMSF trustee has breached the sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA) through their investment in the DomaCom Fund, if the SMSF trustee has signed the ‘Sole Purpose Test Declaration’ and:

  • retains a copy of this declaration
  • provides a copy to their approved auditor
  • we're not subsequently made aware of evidence that indicates the trustee has acted inconsistently with the terms of the declaration.

We'll continue to look closely at whether SMSF trustees breach other provisions of the SISA, or whether they've breached the sole purpose test through other transactions or behaviour.

Our broader administration of the sole purpose test

We welcome others offering similar fractional investment products (who are considering the sole purpose test implications of their product) to engage with us to explore a similar approach by supporting our continued commitment to provide practical and administrative certainty to SMSF trustees.

If you have any questions about fractional property investment and the sole purpose test, contact us via our Request for specific advice form.

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