A sector stakeholder has cautioned practitioners and SMSF trustees of the compliance risk that can arise if the fund invests in a property located overseas via a non-geared unit trust.
Accurium senior SMSF educator Anthony Cullen noted an investment of this nature could trigger Superannuation Industry (Supervision) (SIS) Regulation 13.22D and in turn have the overseas asset treated as an in-house asset. This would negate any advantage the fund could be enjoying under the conditions stipulated under SIS Regulation 13.22C.
“There are countries out there that have restrictions on foreign ownership. There are states within America that have restrictions on foreign ownership and there are laws [that stipulate] how you might go about dealing with those restrictions,” Cullen told attendees of a technical webinar Accurium hosted last week.
He intimated this may mean the SMSF will have to make an investment in United States real estate via another entity.
“So it may end up being that although the super fund is invested in a [SIS Regulation] 13.22C trust and it goes to acquire a property in an overseas jurisdiction and it has effectively acquired ownership in another entity in that jurisdiction and it is that entity that has acquired a property,” he explained.
“That’s going to create a [SIS Regulation] 13.22D event.”
He also identified a similar issue that may arise from the fact a bank account in a foreign country may need to be established in order to receive rent from a property located overseas.
“As far as the bank account is concerned, [a non-related party] trust can have a bank account with an authorised deposit-taking institution as defined under the Banking Act,” he said.
“But I’m not aware of any foreign banks that operate in foreign jurisdictions that are going to be covered by the Australian Banking Act.
“So that is, a lot of the time, going to create some [in-house asset] problems as well.”
