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ATO Interpretative Decision

ATO ID 2004/231

Superannuation

Water licences - leasing of water licences to a related party
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does an arrangement where a Self Managed Superannuation Fund (SMSF) leases a water licence to a related party give rise to an in-house asset as per section 71 of the Superannuation Industry (Supervision) Act 1993 (SISA)?

Decision

Yes. An arrangement where an SMSF leases a water licence to a related party does give rise to an in-house asset as per section 71 of the SISA.

Facts

A SMSF owns a water licence.

A related party of the SMSF wishes to lease the water licence from the SMSF.

Reasons for Decision

An in-house asset is defined within section 71 of the SISA as an asset of the superannuation fund that is a loan to, or an investment in, a related party of the fund, an investment in a related trust of the fund, or 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 excludes certain assets or transactions from the definition of in-house assets however none of the exclusions apply to the lease of a water licence.

Therefore, where the water licence is leased to a related party it will be an in-house asset of the SMSF. The trustee(s) of the SMSF would need to ensure that each year that the water licence is leased to a related party, the water licence and any other in-house assets do not exceed 5% of the total value of the investments of the fund.

Date of decision:  27 February 2004

Year of income:  Year ended 30 June 2003

Legislative References:
Superannuation Industry (Supervision) Act 1993
   section 10
   section 71
   subsection 71(1)
   section 82
   section 83

Related ATO Interpretative Decisions
ATO ID 2002/659
ATO ID 2004/229
ATO ID 2004/230

Keywords
Self managed superannuation funds
SMSF investments
Superannuation
Superannuation fund in house assets

Business Line:  Superannuation

Date of publication:  19 March 2004

ISSN: 1445-2782

history
  Date: Version:
You are here 27 February 2004 Original statement
  30 April 2010 Archived

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