Timing key in business real property status

business real property

The status of business real property in an SMSF hinges on from whom it is acquired and who makes use of it when owned by the fund.

The status of a piece of land or building as business real property depends on from whom it is purchased and when it is leased to a related party, according to an SMSF technical expert.

Heffron head of SMSF technical and education services Lyn Formica said it was possible for an SMSF to purchase vacant land, develop it and then lease it to a related party without breaching any superannuation laws, but the order of the process was important.

Speaking during a recent technical session, Formica presented the case of an SMSF looking to acquire vacant land from a third party with the intention of building warehouses and an office or showroom on the property after the SMSF has purchased it. Following this development, the SMSF would lease the property to a related party.

“So the question is when does this property need to qualify as business real property because whenever an SMSF acquires an asset from a related party or leases an asset to a related party, it needs to qualify as business real property,” Formica said.

“Vacant land, generally speaking, would not qualify as business real property.

“That is okay in this situation because we are acquiring the land from a third party and it does not need to qualify as business real property at the time of acquisition, when that transaction is between the super fund and the third party.”

She said there was no need to qualify the property as business real property until the time the SMSF was going to enter into a lease arrangement with any related party.

“As such, it will be fine to build the warehouse, the office or showroom or whatever it happens to be on this land and that will then become business real property because we have an intention to lease it to someone who’s going to use it wholly and exclusively in a business,” she said.

“Under this circumstance we should be fine to qualify under the super law provisions.”

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