Property, SMSF

Property development rules laid out

SMSF Property development SMSFRB 2020/1 Mark Ellem Accurium

SMSF trustees cannot claim they are unaware of the rules around property development, but ongoing advice may be helpful in ensuring they are properly applied.

SMSF trustees uncertain about the rules relating to property development within their fund have been given clear directions on how to act by the ATO and should consider using an adviser to project manage their application, a senior technical specialist has said.

Accurium head of education Mark Ellem said the clearest indication of what an SMSF could do was provided via the ATO’s SMSF Regulator’s Bulletin 2020/1 and it was only when funds acted outside that guidance that compliance and tax problems occurred.

“It is worthwhile noting that at the top of the bulletin it says ‘to the extent that this bulletin provides guidance to you, and you apply it in good faith to your own circumstances, the commissioner will administer the law in accordance with the guidance outlined in this bulletin’,” Ellem said during an online presentation today.

“So here is your guide, your map to addressing the concerns of the regulator about SMSFs being involved in the development of property.”

He noted the bulletin stated property development was a legitimate investment for SMSFs where it complied with the Superannuation Industry (Supervision) Act and Regulations, but the ATO would act against investments used to inappropriately divert income into a super environment or that were inappropriate for and sometimes detrimental to the retirement purposes.

“For me, that says it’s all about tax,” he said, adding the more complex an arrangement, the more likely it was mistakes would be made.

He noted the ATO encouraged SMSFs considering property development to seek independent professional advice and added this could extend to the drafting of relevant documentation by an appropriately qualified and experienced lawyer.

“Raise this with your client. The moment they mention the words ‘property’ and ‘development’, ask them about the investment they will make in getting advice,” he said.

“I deliberately said the investment in getting advice, not the cost of advice. It’s investment advice about doing it right or maybe not do it at all.”

He said where clients intended to go through with a property development inside an SMSF, they should use a professional adviser to manage the compliance issues throughout the process.

“With property development projects, there’s a property manager involved who keeps it on track and makes sure everything’s happening as it should,” he said.

“The same thing should happen in relation to an SMSF involved in property development. The advice sets out the steps to follow, but we need a manager to ensure those steps are followed.

“If the client wanders off and does something different, they can be brought back and given further advice to say if this affects compliance with the super and tax rules.”

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