The Australian Taxation Office (ATO) has announced it is monitoring self-managed super funds (SMSFs) that undertake property development for investment purposes, focusing on activities involving related parties of the SMSF, whether as co-investors or service providers to the development.
The announcement outlines ATO concerns where property development activity by a SMSF has the potential to contravene regulatory requirements, or where profits from the development may be taxed at the highest marginal rate rather than concessional super fund rates.
The ATO considers property development a legitimate investment for SMSFs where it complies with superannuation laws.
The announcement flags scrutiny of developments involving related parties of the SMSF, as co-investors or service providers to the development, all dealings of which rules require to be at arm’s length terms. The ATO will scrutinise documentation supporting the development to determine the arm’s length nature of transactions. It is critical that documentation associated with any SMSF development structure or activity is complete, clear, accurate and available. This is expected to be the area where disputes are most likely to arise, as the ATO will have high expectations regarding the standard of documentation that should be in place.
The technical position taken by the ATO is broadly consistent with options we recommend when advising clients about how to structure these types of investments so that they do not fall outside the rules and regulations.
To review your current or proposed arrangements, or if have concerns regarding property activities in your SMSF, please contact your Pitcher Partners advisor.
