No “present day” property benefits to be allowed for SMSF members, says ATO

In a move that seems to pre-empt a proposed investment option put to it by a “fractional” investment property platform, the ATO issued an announcement last week warning that SMSFs that provide “present day” real property benefits to members is contrary to the sole purpose text, and will render an SMSF non-compliant.

The ATO stance is in response to questions that had been put to it by DomaCom Fund, a managed investment fund that places properties in a sub-fund and issues investors units based on their investment level. According to DomaCom, the outcome of the proposed structure would have allowed SMSF investors to live in properties that their fund owns.

However in a statement released on October 6, assistant commissioner Kasey Macfarlane said the ATO “does not condone and will take serious action with respect to any promotion of SMSF investments as a means for providing present day benefits for members, their relatives or other related parties. This includes the provision of residential accommodation to related parties such as children of SMSF members.”

Macfarlane said the ATO, contrary to various media reports, is not considering allowing the broader use of SMSF assets beyond the sole purpose of providing retirement benefits for members.

“The use of SMSF property investments as a means of providing residential accommodation to SMSF members’ children and other related parties contravenes the requirement that an SMSF be established and maintained for the sole purpose of providing retirement benefits for members or benefits for their dependants upon death,” she said.

“The use of any SMSF investment as a means for providing a present day benefit for members also directly contravenes other superannuation regulatory rules and restrictions that apply to SMSF investments.”

SMSF trustees considering using such property investment structures are warned to tread carefully and seek informed advice.

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