ATO Interpretative Decision
ATO ID 2006/261 (Withdrawn)
Superannuation
Self Managed Superannuation Funds: leasehold interest in an afforestation arrangementFOI status: may be released
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This ATO ID is withdrawn as it is superseded by SMSFR 2009/1 Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993This document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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 (SISA) occur if a trustee of a self managed superannuation fund (SMSF) acquires an interest in an afforestation arrangement from a related party of the fund?
Decision
Yes. A contravention of subsection 66(1) of the SISA will occur if a trustee of a SMSF acquires an interest in an afforestation arrangement from a related party of the fund.
Facts
A related party of a SMSF holds an interest in an afforestation arrangement.
The afforestation arrangement provides for the growing of trees on an identified area of land, the maintenance, harvest and sale of the trees and a right to proceeds of that sale.
The trustees of the SMSF intend to acquire the interest in the afforestation arrangement from the related party.
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 the SISA applies.
Acquisition of 'business real property' from a related party is one of the exceptions provided by subsection 66(2) of the SISA, provided that it is acquired at market value.
Business real property is defined in subsection 66(5) of the SISA. The definition requires real property to be used wholly and exclusively in one or more businesses (whether carried on by the SMSF or not).
The interest in the afforestation arrangement is not just the interest in the real property. The afforestation arrangement involves the interest in the real property and an agreement with another entity with respect to the management of the property, the planting of the trees, their maintenance and their eventual harvest and sale. The interest in the real property cannot be assigned separately from the agreement with the other entity. As a result the afforestation agreement is not business real property.
Therefore, the SMSF will contravene subsection 66(1) of the SISA if it acquires the interest in the afforestation arrangement from a related party of the fund.
It should be noted that subsection 66(2A) of the SISA may allow for the acquisition of the afforestation arrangement where the asset is an in-house asset and its acquisition does not result in the level of in-house assets held by the fund exceeding the level permitted by Part 8 of the SISA.
Date of decision: 14 September 2006
Legislative References:
Superannuation Industry (Supervision) Act 1993
section 66
ATO ID 2002/987
Keywords
Self managed superannuation funds
SMSF acquisition of assets
SMSF business real property
SMSF investments
Superannuation
ISSN: 1445-2782
| Date: | Version: | |
| 14 September 2006 | Original statement | |
| You are here | 8 May 2009 | Archived |