Thank you

Hi Noble

Yes under section 66 of SIS a SMSF can acquire business real property from a member of the Fund.

Re the market value my view is the trustees should obtain an independent valuation to establish the value of the property and it is transferred on that basis.

The ATO provides guidance on SMSF & valuations at:

www.ato.gov.au Valuation guidelines for self-managed super fundsThis ATO guide helps self-managed super fund trustees when valuing assets for superannuation purposes.

Given that the Fund is acquiring the asset from a related party preferably there is an independent third party valuation.

Technically in your example the trustees are not required to get an independent third party valuation however as per the ATO they will need to provide documentation to the auditor that the:

"valuation has been arrived at using a 'fair and reasonable' process. Generally, a valuation is considered fair and reasonable where it meets all the following.

• it takes into account all relevant factors and considerations likely to affect the value of the asset

• it has been undertaken in good faith

• it uses a rational and reasoned process

• it is capable of explanation to a third party."
  

As an example if the trustees could provide evidence of a recent sale of a similar property that supports the valuation this may be a reason to not need an independent third party valuation.

The ATO highlights that acquiring property from a related party may be a reason that requires trustees to consider an independent third party valuation and they state:

"You should determine the market value of the acquired asset based on objective and supportable data.

Consider using a qualified independent valuer if either the:

• value of the asset represents a significant proportion of the fund's value

• nature of the asset indicates that the valuation is likely to be complex or difficult.

An approved SMSF auditor can seek an independent valuation of the fund's investments, as part of their audit and assurance engagement."

To establish if the property is a commercial property I would request a copy of the lease agreement & see if this discloses what the property is to be used for.

The ATO has a very good ruling that goes through the business real property definition & it can be found at:

https://www.ato.gov.au/law/view/document?src=hs&pit=99991231235958&arc=false&start=1&pageSize=10&total=19&num=6&docid=SFR%2FSMSFR20091%2FNAT%2FATO%2F00001&dc=false&stype=find&tm=phrase-basic-SMSFR%202009%2F1

The ruling is SMSFR 2009/1 - SMSF's: business real property for the purposes of the SIS Act.

It states:

"The definition of business real property is in subsection 66(5):

The ruling has a number of detailed examples.

Thanks

SMSF AAA