ATO Interpretative Decision
ATO ID 2004/92 (Withdrawn)
Superannuation
Retirement income entities - acquisition of residential property from membersFOI status: may be released
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This ATO ID has been withdrawn from the database as it is superseded by paragraphs 283 to 285 of SMSFR 2009/1 Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 residential property, which is managed by a property manager, from a member of the superannuation fund?
Decision
Yes. A contravention of section 66 of the SISA will occur where a superannuation fund purchases a residential property, which is managed by a property manager, from a member of the superannuation fund.
Facts
The property is a residential property.
The property is owned by a member of a self managed superannuation fund (SMSF).
The property is managed by a property manager.
Income is received by the member, based on the occupancy of the property, after taking into account expenses incurred with to respect to the property.
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.
'Business real property' of the related party is one of the exceptions contained within subsection 66(2), provided that it has been acquired at market value.
Business real property is defined in subsection 66(5) of the SISA. The definition requires business 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 business.
Taxation Ruling TR 97/11 provides several indicators that a business is being carried on. These include (but not limited to):
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- significant commercial activity
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- purpose and intention of the taxpayer in engaging in the activity
The onus is on the taxpayer to show that a business is being carried on. If a business is not being carried on, then the property cannot be characterised as business real property.
In this situation, it is considered that the property manager may be engaged in an enterprise but is not carrying on a business with respect to the property.
This is because:
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- The property manager does not have an interest in the property but merely acts as an agent for the member
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- The member must approve all acts done by the property manager to the property and retains ultimate control over the property.
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- The property manager collects income as an agent for the member
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- All expenses in respect of the property are ultimately the responsibility of the member
The property that the SMSF is attempting to acquire is not used in carrying on a business by either the member or the property manager. The property manager acts at all times as an agent for the member of the fund with all income and expenses arising from the property being attributable to the member. Therefore, the property is not business real property.
Date of decision: 20 January 2004Year of income: 2002
Legislative References:
Superannuation Industry (Supervision) Act 1993
Section 66
Subsection 66(1)
Subsection 66(2)
Subsection 66(5)
Related Public Rulings (including Determinations)
Taxation Ruling 97/11
ATO ID 2002/732
ATO ID 2003/807
Keywords
Self managed superannuation funds
SMSF acquisition of assets
SMSF business real property
SMSF investments
Superannuation
ISSN: 1445-2782
| Date: | Version: | |
| 20 January 2004 | Original statement | |
| You are here | 14 May 2010 | Archived |