Trustees have been cautioned about undertaking work on a commercial property held within their SMSF as charging the fund for the service could lead to multiple contraventions of superannuation law, according to a technical expert.
Heffron head of education and content Lyn Formica advised trustees to exercise caution when considering whether to install and complete a fit-out for a commercial property owned by their SMSF as there are only very limited circumstances where this may be permitted.
“Trustees can’t normally be remunerated for their services as a trustee. If we’ve got a fit-out, that would normally be a trustee duty, so the trustee would need to already offer those services to the public and charge an arm’s-length fee to not end up with a SIS (Superannuation Industry (Supervision)) compliance problem,” Formica noted during a recent briefing.
“So for some trustees, they are going to cause themselves a SIS compliance problem if they did the fit-out themselves.”
Heffron senior SMSF technical specialist Annie Dawson echoed Formica’s concerns, advising a safer approach would be for trustees to personally fund property enhancement costs.
“We usually see tenants pay for them rather than the fund because the fit-outs are not permanently affixed so they can be removed. So in those cases when we’re leasing to related parties, we want to make sure that we’re just leasing business or property,” Dawson said.
“It’s more common to see tenants pay for fit-outs because otherwise we’d have in-house asset issues with that, as well as making sure that it’s consistent with the sole purpose test.
“The fund’s not allowed to pay for the fit-out when the tenant’s leaving … we have a section 66 breach because the fund’s acquired an asset it shouldn’t have, being the fit-out. The issue then is we’ve got to dispose of the illegally acquired asset to make good.
“I had a client recently where the fit-out was acquired when the tenant left. The tenant left because they were selling the building. So they had a section 66 breach, but they’re eventually going to rectify the breach because they’re disposing of the property.”
