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Edited version of private advice
Authorisation Number: 1051520446249
Date of advice: 22 May 2019
Ruling
Subject: Self-managed superannuation fund: carrying on a business
Question 1
Does the purchase of two residential investment properties by a self-managed superannuation fund (SMSF) amount to carrying on a business?
Answer
No. Considering the arrangement as a whole, the self-managed superannuation fund does not meet the relevant factors contained in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production?
Question 2
Will the investment activities of the SMSF be subject to capital gains tax?
Answer
Yes. The SMSF is not carrying on a business of property development, therefore the investment activities of the SMFS will be subject to capital gains tax.
This ruling applies for the following period
Year ended 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX.
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The SMSF currently has investments in managed funds.
The members would like to purchase a residential investment property (approximately 770 square metres) in their SMSF with a view to demolishing the current building, subdividing the block into three blocks (strata titles) and constructing three new units which will be sold to unrelated parties immediately following completion.
The members have very little experience with property development. Therefore, they will subcontract all the demolition and construction to a property development company. The sale of the units will also be done by a real estate agent.
The members are currently undergoing a similar development project through their family trust. In this case, two of these units will be sold when completed and the remaining unit will be rented to a family member
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 6-5
Income Tax Assessment Act 1997 section 995-1
Income Tax Assessment Act 1997 part 3-1
Income Tax Assessment Act 1997 part 3-3