An SMSF purchasing property for use as staff accommodation for a related-party business is likely to breach the in-house assets or sole purpose tests, according to two technical specialists who have seen the ATO question such arrangements.
Heffron senior SMSF specialist Annie Dawson said the in-house assets test would apply to any lease of property by a fund to a related party unless it was business real property with a legally binding lease that was used for carrying on a business.
“The key here is whether or not [the staff accommodation] is being used in the carrying on of a business and that will always be up to the trustee to demonstrate why it’s regarded as being used in that way,” Dawson said during a recent technical clinic.
“We have got a few rules which mean we are allowed a small amount of private use, but for something like staff accommodation, it’s obviously the whole of the property is going to be used for residential use.
“As a general rule, residential use typically does not qualify as business real property. We have those exceptions where it is absolutely integral to the business, such as when you are leasing a hotel and 24/7 you need a manager on site.
“For most other businesses the leasing of property for staff is more around convenience as it’s easier for the business to be able to get staff out to site quicker if they are working more remotely, but that will not be enough to be regarded as business real property.”
Heffron SMSF specialist Sean Johnston said the firm had seen a case recently where a client’s business was doing work in remote Australia and the nearest town was an hour away, and their fund had an opportunity to purchase a house in the town where staff could be accommodated.
“The client went off to the ATO and asked the question and the ATO said there’s more suitable accommodation closer by and you could do something else,” Johnston said.
“It sounds like a horrible result, but it’s probably genuinely the right answer. It just does not feel it.”
Dawson added the SMSF would breach the sole purpose test if rather than leasing the property to the related business, it leased it directly to the staff due to the motivating factors behind the purchase.
“Why did you decide to invest in or purchase the property? The current-day benefit – it would be difficult to argue it wasn’t there, especially if you started with the question of whether you could lease the property to a related party,” she said.
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason