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Edited version of private ruling
Authorisation Number: 1051589303032
Date of advice: 9 October 2019
Ruling
Subject: Superannuation contributions
Question
Will the value of improvements made to an asset of a Self-Managed Superannuation Fund (the SMSF) be considered contributions to the SMSF under section 295-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following period:
1 August 2018 to 31 July 2020
The scheme commences on:
1 August 2018
Relevant facts and circumstances
· There are four members in the SMSF. There is a corporate Trustee for the SMSF.
· The SMSF is a complying superannuation fund as defined in subsection 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), and section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA). The SMSF owns real estate with improvements that is leased to an unrelated party and used on a commercial basis ('the Property').
· Title to the Property is held under a bare trust (the Bare Trustee) relationship on behalf of the SMSF.
· You provided a copy of the trust deed declaring that the Bare Trustee holds the Property in trust for the SMSF was provided with the application.
· The SMSF has entered into a lease agreement ('the Lease') with an unrelated company ('the Lessee'). You provided a copy of the lease agreement.
· The Lessee is a wholly owned subsidiary of a holding company ('the Holding Company'). You provided a copy of an ASIC extract of the Lessee and the Holding Company.
· As part of the Lessee's operations it intends to construct a showroom building on the Property.
· The Lease does not provide that upon completion of the lease the Lessee must return the property to its original condition and it is the intention of the Lessee and the SMSF that the new building remain on the property at the completion of the lease.
· The addition of the building to the property will substantially increase the value of the Property.
· The SMSF and the Lessee are completely at arm's length of each other.
· The Lease is on ordinary commercial terms.
Relevant legislative provisions
Section 295-160 of the Income Tax Assessment Act 1997
Reasons for decision
Section 295-160 of the ITAA 1997 states that the assessable income of a complying superannuation fund includes contributions paid into it, to provide superannuation benefits for someone else.
Paragraph 4 of Taxation Ruling TR 2010/1 Income Tax: superannuation contributions ('TR2010/1') defines a contribution as:
'anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general'
> However, paragraphs 6 to 8 of TR 2010/1 states:
'6. Not every increase in the capital of a fund is a superannuation contribution as a person who increases a fund's capital must have the purpose of benefiting one or more particular members of the fund or all of the members in general.
7. A person's purpose is the object which they have in view or in mind. Generally, a person will be said to intend the natural and probable consequences of their acts and likewise their purpose may be inferred from their acts. This is a determination of a person's objective purpose, not their subjective intention.
8. A person will not normally have a purpose of benefiting a member of the fund if the transaction they carry out is in no way dependent upon the identity of the other party as a superannuation provider or they are simply fulfilling the terms of a contract or arrangement entered into on a commercial or arm's length basis.'
In this case, as there is a lease agreement where it has been shown that the clear intention of the Lessee for making an improvement to the SMSF property is to carry out their business and not for the benefit of the members of the SMSF.
It is not relevant to the Lessee that the lessor is a superannuation fund or who the parties involved in the SMSF are.
For these reasons, any increase in the value of the assets of the SMSF that are made by the Lessee are not contributions to the SMSF.