ATO Interpretative Decision
ATO ID 2002/388
SuperannuationRetirement income entities: In-House Assets and leasing property from a Unit Trust.
FOI status: may be released
Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Has a contravention of section 71 of the Superannuation Industry (Supervision) Act 1993 (SISA) occurred where the member/s of a Self Managed Superannuation Fund (SMSF) lease a residential property from a unit trust which is a related party or related trust of the SMSF?
No, the members leasing of a residential property from a unit trust related to an SMSF would not cause the fund to contravene the in-house asset rules as set out in section 71 of the SISA.
The SMSF has two members.
Persons associated with the SMSF established a unit trust prior to 11 August 1999.
At all times, all the units in the unit trust have been held by the trustee for the SMSF. The unit trust has a residential property as one of its investments. The residential property was funded in part by borrowings by the trustee of the unit trust.
The members of the SMSF wish to lease the property for themselves and pay a market rate for the lease.
Reasons for Decision
An in-house asset of a superannuation fund includes, '...an asset of the fund subject to a lease or lease arrangement between the trustee of the fund and a related party of the fund...' - subsection 71(1) of the SISA.
A lease arrangement involving members (in their capacity as members and not as trustees) of an SMSF (as lessees) leasing residential property from the unit trust does not fall within the definition of an in-house asset. This is because the asset involved is that of the unit trust and not an asset of the SMSF. The SISA places no restrictions on the members of the SMSF tenanting the residential property of the unit trust provided the SMSF's investment in the unit trust is consistent with its investment strategy and the unit trust is conducting its dealings with SMSF members on an arms length basis. However, the lease agreement would need to be entered into and maintained on an arm's length basis. Further the SMSF's ongoing investment in the unit trust would need to be continually reviewed against the investment strategy of the fund. Dealings between the unit trust and members of the SMSF will need to be on an arms length basis to avoid a contravention of the implied investment covenant in paragraph 52(2)(f) of the SISA.Date of decision: 6 September 2001
Self managed superannuation funds
Superannuation fund in house assets
SMSF related parties
Date reviewed: 7 August 2018