Fractional property investment manager DomaCom has received notice from the ATO that SMSF investors in its funds will be able to satisfy the sole purpose test when a property investment is rented by a related party of the fund.
DomaCom said it received notification from the ATO on 30 October that it would “not apply compliance resources regarding the sole purpose test for an investment by an SMSF into a DomaCom sub-fund that owns a residential property, where a related party of the SMSF may happen to become a tenant”.
In granting the guidance, the SMSF regulator agreed to a number of conditions with DomaCom under which it would not apply compliance resources.
These conditions will require DomaCom to amend its platform to allow trustees to make a sole purpose test declaration when making an investment, and the platform will record this declaration and make it available to the ATO and SMSF auditors.
“The declaration ensures that SMSF trustees do not engage in behaviour that suggests they are maintaining their SMSF for the collateral purpose of providing accommodation to a related-party tenant,” DomaCom stated.
Additionally, the company will also amend its product disclosure statement (PDS) and supplementary PDS for the DomaCom Fund covering the sole purpose test declaration.
In its letter to DomaCom, the ATO said it “may still apply compliance resources to scrutinise whether an SMSF has contravened other provisions of the SIS (Superannuation Industry (Supervision)) Act (such as the in-house asset rules), and we may apply compliance resources to scrutinise whether the trustee contravenes the sole purpose test through other unrelated conduct”.
The notification follows a court case involving DomaCom and the ATO related to the issue of leasing to a related party of a property held in a sub-fund where an SMSF is the owner of units in the sub-fund. The case, generally known as Aussiegolfa, was settled in DomaCom’s favour in August 2018.
DomaCom chief executive Arthur Naoumidis said: “I am pleased to confirm that DomaCom has obtained ATO confirmation on how SMSF trustees in DomaCom can satisfy the sole purpose test after the full Federal Court of Australia judgment in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation (2018) FCAFC 122.
“We thank the ATO for providing this practical clarification so that SMSFs can continue to invest in DomaCom property sub-funds where, subject to certain protocols being observed, related parties may happen to become the tenant of the underlying properties.”