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From time to time the Tax
Office issues “Taxpayer Alerts” intended to be an “early warning” of
significant new and emerging higher risk tax and superannuation planning issues
or arrangements. This is published for
SMSF trustees and their financial advisers “to exercise care” .
The latest Taxpayer Alert TA
2012/7 published 20 November 2012 relates to self managed superannuation funds (SMSFs)
which acquire property in contravention of the superannuation laws. You can find it in full here. The ATO is particularly concerned about acquisitions
involving limited recourse borrowing
arrangements (LRBA) or the use of a related unit trust.
Incorrect structuring of such
arrangements may lead to a range of significant consequences for the fund such
as:
- Having to include the SMSF loan repayments in
members’ assessable income;
- Members having to declare the income and
associated deductions from the investment rather than by the SMSF;
- Rendering the SMSF non compliant for tax
purposes, leading to the requirement that it include amounts of income
from previous years in its assessable income (45% tax rate applied to its income and market value of its assets other than undeducted contributions measured at the start of the income year in which the fund becomes non-complying. There may also be civil or criminal penalties for trustees);
- The unit trust might incur a capital gains tax
liability in relation to the disposal of the property; and
- The Members and the SMSF may be required to
include a capital gain in their assessable income on redemption of their
units in the unit trust.
Structuring such property
acquisitions by SMSFs within the rules is complex and requires great care and
knowledge of the Superannuation laws and regulations. We have
done these transactions for clients who have specific knowledge of the property
in question together with a clear idea of its likely future performance and who are prepared to very carefully negotiate and structure the requisite documents. It’s certainly not for everybody.
We also note that residential
real estate in Australia would need to rise around 8% from today to reach its all time high (in 2010)
and we consider generally that now is not the time to consider such an
acquisition within super, with the primary purpose of seeking capital gains. The Australian equity market by comparison needs to rise by over 50% from today to reach its all time high (2007). In all likelihood both asset classes will make new highs in the next decade but this comparison shows equity markets have more to gain than Australian residential real estate. The comparison is different for commercial and industrial property.
We know you won’t find many
financial advisers in Australia
