ATO, Property

Fractional investments okay post Aussiegolfa

ATO fractional investments SMSF

The ATO will consider the use of fractional property investments inside an SMSF, but will require providers to seek its approval before going to market.

The ATO has indicated it is open to fractional property investments being used within an SMSF, but product providers would need to seek approval from the regulator before going to market.

The SMSF regulator made the comments as part of a statement titled “Guidance for SMSFs on fractional property investment”, in which it invited fractional investment product providers that were considering the sole purpose test implications of their products to speak with the ATO.

In making the invitation, it said “we’re confirming our approach to the sole purpose test for fractional property investment products, such as the DomaCom Fund that was the subject of the full Federal Court decision in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation”.

“We welcome others offering similar fractional investment products … to talk with us to explore a similar approach. This supports our continued commitment to provide practical and administrative certainty to SMSF trustees,” it stated.

In referencing the Aussiegolfa case and DomaCom Fund, it highlighted that in its decision impact statement released after the court decision it indicated SMSF trustees could potentially breach the sole purpose test by investing in a sub-fund of the DomaCom Fund where the SMSF was maintained for the collateral purpose of providing accommodation to a related party.

To prevent this, the ATO provided sole purpose guidance to DomaCom on 30 October that requires the latter to provide a ‘sole purpose test declaration’ to SMSF trustee investors under which trustees will not engage in behaviour that would lead the ATO to believe they are in contravention of the sole purpose test.

The ATO noted: “We will not apply compliance resources to scrutinise the sole purpose test where a trustee investing in DomaCom’s fund signs this declaration and there is no evidence that their actions contradict it.”

The regulator would, if required, use its resources to check whether a fund contravened other provisions of the Superannuation Industry (Supervision) Act or contravened the sole purpose test through other unrelated conduct.

It added it would update its guidance on its website to provide more detail on its compliance approach and the ‘sole purpose test declaration’ DomaCom had introduced.

Additionally, any specific inquiries around fractional property investments and the sole purpose test should be directed to the ATO via its SMSF-specific advice channel, which deals with how superannuation law applies to a particular transaction or arrangement for an SMSF.

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