ATO Interpretative Decision
ATO ID 2003/807 (Withdrawn)
Superannuation
Related party acquisitions - unit in short term accommodation complexFOI status: may be released
-
This ATO ID is withdrawn as it is superseded by SMSFR 2009/1 Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Issue
Will a contravention of section 66 of the Superannuation Industry (Supervision) Act 1993 (SISA) occur where a superannuation fund purchases a unit in a large block of units from a member of the superannuation fund.
Decision
No. A contravention of section 66 of the SISA will not occur where a superannuation fund purchases a unit in a large block of units from a member of the superannuation fund.
Facts
The property is a single unit in a large block of units.
The unit is owned by a member of a self managed superannuation fund (SMSF).
The units are all used for short term accommodation.
The block of units is operated by independent professional managers in an at arm's length arrangement on a pooled income and expenditure basis.
Net income is distributed to all unit holders on the basis of the number of units owned not on the basis of occupancy rates for individual units.
Neither the member nor any associate of the member has ever occupied the unit.
Reasons for Decision
Subsection 66(1) of the SISA prohibits a SMSF from acquiring an asset from a related party of the fund unless one of the exceptions in subsection 66(2) of SISA applies.
One of the exceptions is 'business real property' of the related party acquired at market value (paragraph 66(2)(b) of the SISA).
Business real property is defined in subsection 66(5) of the SISA. Part of the definition requires the real property to be used wholly and exclusively in one or more businesses (whether carried on by the SMSF or not).
The term business is defined in subsection 66(5) of the SISA to include any profession, trade, employment, vocation or calling carried on for the purpose of making a profit
The question of whether an entity is carrying on a business is determined on a case by case basis. There are a number of factors that need to be taken into account to determine whether an enterprise is carrying on a business
In these circumstances, it is considered that the operation and running of the complex of units amounts to the carrying on of a business for the purposes of the SISA. This is because:
- •
- The units are all for short term accommodation;
- •
- The block of units are operated by independent professional managers in an at arm's length arrangement on a pooled income and expenditure basis; and
- •
- Net income is distributed to all unit holders on the basis of the number of units owned not on the basis of occupancy rates for individual units.
The unit that the SMSF is seeking to acquire is part of the complex of units. Therefore, as the operation and running of the complex of units is considered to be carrying on a business the unit would be considered to be real property used wholly and exclusively in that business.
Date of decision: 8 November 2002Year of income: Year ended 30 June 2002
Legislative References:
Superannuation Industry (Supervision) Act 1993
Section 66
subsection 66(1)
subsection 66(2)
subsection 66(5)
Keywords
SMSF acquisition of assets
SMSF business real property
ISSN: 1445-2782
| Date: | Version: | |
| 8 November 2002 | Original statement | |
| You are here | 8 May 2009 | Archived |