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Gino Coiera

Feb 21, 2022

Residential considered Business Real Property

in SMSF Technical Forum

Hi,

I would like confirmation that a member can sell to it's SMSF, a unit which I consider "business real property". The Unit is one which is part of the Mantra Group in the Crown Towers Qld. The unit is managed by Crown Towers and at the end of the month, owners receive a share of the "pool" from Crown Towers. I consider the unit to be part of the business structure of Mantra and the Member in question cannot deal with the property as he sees fit (ie. rent it seperately to the Mantra structure), except sell it when the time comes.

Please either confirm my interpretation as I'm sure I have read an ATO publication confirming this but cannot now find it.

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Gino Coiera

Feb 22, 2022

Thanks once again for a prompt and very informative respone.

THE AUDITORS INSTITUTE

Feb 22, 2022

Hi Gino

Refer to SMSFR 2009/1 SMSF's - business real property for the purposes of SIS.

The ruling has information on this issue and does provide 2 examples that you need to refer your example to. It would appear that your example would be similar to example 19 & would be business real property if that is correct.

"Example 19: Strata titled hotel complex

296. Mr Chou owns a studio apartment in a strata titled hotel complex. The contract for purchase includes a requirement that the unit is leased for fifteen years to Xin Pty Ltd, hotel business, with rent paid to Mr Chou based on occupancy of the complex. The contract specifies that the freehold owner has no right to reside in the unit during the time it is leased to Xin Pty Ltd.

297. Mr Chou wishes to sell the unit to his SMSF.

298. The real property is used wholly and exclusively in Xin Pty Ltd's hotel business and is business real property of Mr Chou for the purposes of acquisition. However, if Mr Chou or a related party of the SMSF intended to stay in the unit at any time, there may be in-house asset implications.[102]

Example 20: Management company

299. Penny and Julie purchased a serviced apartment in a large block of similar units. The contract for sale requires that Penny and Julie make the unit available exclusively for short term stays using the services of a management company nominated by the developer of the complex. Earnings from the unit are returned to Penny and Julie by the management company after fees and reimbursements have been deducted.

300. Penny as trustee for PD SMSF would like to acquire the apartment as an investment.

301. The apartment is not business real property of Penny and is not a permitted acquisition under section 66. Penny does not carry on a property investment business. The use of the apartment by guests does not have a nexus to the management company's business as this use involves the exercise of rights granted by Penny and Julie, not the management company."

Thanks

SMSF AAA