Compliance, Property, SMSF

Zoning does not define BRP

SMSF Business real property Zoning

The zoning rules applying to a piece of real estate have no significance in determining whether the asset can be considered business real property.

An industry expert has reminded practitioners the use for which a plot of land has been authorised under the zoning laws has no bearing on whether that piece of real estate satisfies the definition of business real property with regard to an SMSF.

“Zoning does not dictate whether or not [an asset] is business real property,” Smarter SMSF technical and education manager Tim Miller told attendees of the latest SuperGuardian webinar held last week.

“It’s not what something is, it’s how [an asset] is used that determines whether or not it is going to be business real property.”

Miller pointed out there are many real-life situations clearly illustrating how commonly this principle is applied.

“We all have the examples, and many of you may even exist in these examples, of where accounting firms, financial advising firms, legal firms and medical practices [are operating out of] old houses [that have been] converted into business premises,” he noted.

“And so if those premises are used exclusively for business purposes, then they wold satisfy the definition of business real property.

“So the zoning of residential or part-residential or part-commercial or exclusive commercial use is not what dictates [whether a property satisfies the definition of business real property], it’s going to be what the actual use [of the property] is.”

To emphasise his point, he referred to Example 8 included as part of ATO Self Managed Superannuation Funds Ruling 2009/1.

In this instance, parents owned a vacant block of land that had been zoned for business use and it was their intention to include it in an existing SMSF. They allowed their son to occasionally park his business machinery and equipment on the site without charging him a fee.

“We have to look at the two [relevant] conditions and condition one is [whether] it is an eligible interest in real property. And the answer is yes it is,” Miller said.

“Then the second [condition] is [whether] it is being used solely and exclusively in a business [and] the fact that it’s zoned [for] business [purposes] is not what is relevant there. It is what, in this instance, what [the son] is using it for and [the parents] are not using it wholly for [their son’s] business.”

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