Changes to the superannuation laws that restrict new limited recourse borrowing arrangements (LRBA) to business real property (BRP) will require SMSFs to ensure they review and understand the rules around the use of such an asset, a technical specialist has noted.
Smarter SMSF education and technical manager Tim Miller said it was important practitioners and trustees fully understood the concept of ‘wholly and exclusively’ when it came to the use of BRP under the revised LRBA rules in section 67A of the Superannuation Industry (Supervision) Act.
“This definition is very relevant for the acquisition of an asset from a related party. It is also very relevant for the exception to the in-house asset rules that we satisfy the wholly and exclusively requirement,” Miller said in a presentation hosted by SuperGuardian today.
“Now it’s very relevant with regards to section 67A and for a single acquirable asset that there is no other use for that property.”
He noted the ATO placed a strong emphasis on the terms ‘wholly and exclusively’ in its definition of BRP in Self Managed Superannuation Funds Ruling 2009/1, adding that while they sounded similar, they had different meanings when applied to the use of property.
“When we are talking about wholly and exclusively, what we are trying to identify is the extent the land or property is being used for business purposes,” he added.
“The ATO is not saying that every part of the land must actually be used, but all that is being used is done so for business purposes.
“So if you have, for example, a warehouse, a factory, an accounting or financial services practice inside a property, you should not have a portion of that property being used for personal purposes. The example the ATO often use is storing personal things onsite or other non-business activity taking place.”
He noted there were some minor exceptions to the rule in regards to primary production that allowed for up to two hectares of land to be used for a residential dwelling, but even in this case the ATO applied the wholly and exclusively rules.
“In primary production, there might be some paddocks that people use for hobby farming or riding their own horses and can restrict property from meeting the definition of BRP,” he said.
“Wholly and exclusively means to the extent that you can use the property, it’s being used for business only. It does not mean the whole property must be used, but what is able to be used is being used for business purposes.”
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