A senior executive of an accounting firm has reminded practitioners vacant land does not satisfy the definition of business real property (BRP) and subsequently cannot be acquired by an SMSF from a related party.
Further, LDB Group principal Michael Gilmour noted while trustees might present reasons as to why the vacant land in question might be classified as BRP, none of the arguments can be considered as being valid.
“The concern that we have is that this test [as to whether an asset is BRP] would need to be satisfied at the time that the transaction is to occur,” Gilmour told delegates at The Auditors Institute SMSF Auditors Day 2024 held recently in Sydney.
“It’s not good enough to say ‘but after the transaction has occurred, this vacant land happens to be on the fringes of Sydney and we’re going to lease it to a farmer’ and so on and so forth.
“What happens after the intended acquisition that might turn it into business real property doesn’t get you over the hurdle of acquiring the vacant land from a related party in the first instance.”
However, he pointed out vacant land can be transferred into an SMSF via an in-specie transaction and recognised the set of circumstances as to why members would look to do so and how it could be executed.
“This is best done where the land is actually held by the members of the fund directly, by mum and dad in their capacity as individuals, and they’re wanting to soak up their three-year bring-forward [non-concessional contributions] cap,” he said.
“What you could do, and rarely land will be worth less than $660,000, meaning you still might need a bit more [money for the process], is perhaps [use] a hybrid transaction where the super fund is [receiving] an in-specie contribution for a portion of that land, with the residual effectively being paid for by the super fund.”
He advised practitioners to always be conscious of using accurate valuations for these types of transactions.
