ATO urges caution with SMSF property investments

The ATO has warned trustees of self-managed superannuation funds (SMSFs) to be cautious when investing in property.

The ATO is concerned that people are using their SMSFs to invest in property without fully understanding their obligations under the law, or that some people are seeking to take advantage of certain types of arrangements.

The ATO is primarily concerned with arrangements where:

  • an SMSF invests in a related unit trust by acquiring units in the trust, and the unit trust acquires property, but the arrangement breaches the superannuation compliance rules in some way, such as where the property is subjected to a mortgage, or is acquired from or rented to a related party, when it would otherwise be prohibited; and
  •  an SMSF enters into a Limited Recourse Borrowing Arrangement (LRBA) to acquire an asset, and the arrangement does not comply with the strict conditions that must be met for SMSFs that borrow.

In particular, these borrowings must generally be used to acquire a single asset (that the fund is not otherwise prohibited from acquiring; e.g., SMSFs are prohibited from acquiring residential property from a related party), and the asset acquired cannot be held directly by the SMSF but must be held by a separate ‘holding trustee’ (or ‘custodian’), solely for the benefit of the SMSF.

The ATO has also stated that:

  • the trustee of the holding trust must be in existence, and the holding trust must be established, by the time the contract to acquire the asset is signed; and
  • the SMSF cannot borrow to acquire a vacant block of land and then use the same borrowing to construct a house on the land.

According to the ATO:

“The fine details are important and trustees need to be sure that property is the right investment for their SMSF and that the arrangement is legal.”

“Some of these arrangements, if structured incorrectly, cannot simply be restructured or rectified.  The only option may be to unwind the arrangement which could involve forced sale of assets at an inconvenient time.  This could be very expensive for the fund with potential stamp duty and tax consequences.”

SMSFs that do not comply with the superannuation laws may also become ‘non-complying’ for tax purposes and, if the SMSF or the unit trust needs to dispose of the relevant property, they may incur a CGT liability, or the SMSF (and any other unitholders) may be required to include a capital gain in their assessable income if they need to redeem their units in the unit trust.

In addition, the ATO states that where arrangements are deliberately entered into to get around the law, the fund’s trustees may be disqualified, face civil penalties or even face criminal charges.

Benefits of networking for businesses (part 1)


I’ll be the first to admit that I don’t regard myself as an expert in networking, so don’t take this as advice or recommendations in any form. In this 4-part article on networking for businesses I’ll be sharing some of my personal thoughts and experiences on the topic of business networking. It’s been beneficial to my business, obviously limited by my own abilities and availability, but at least I hope it will give you food for thought when considering how it can benefit you in your business as well.

Word of mouth Marketing

Regardless of how much money a business might spend in marketing and advertising, one of the best sources of business is through personal referrals, or word of mouth marketing. Word of mouth marketing is as old as history itself, but its effectiveness is not lost even today in its modern interpretation, namely social media.

The power of testimony – “I’ll have what she’s having”

Do you know the scene from When Harry Met Sally? After Sally shows her ‘enthusiasm’ in the restaurant, another diner across from her chooses to order the same dish with the words “I’ll have what she’s having”. But why would she say that and what does it mean?

Aside from having experienced a product or service yourself, the next best thing would be to receive someone’s personal testimony or recommendation, even more so when it comes from someone that you trust. Isn’t it natural to think if someone has had a good experience with that product or service, then you might as well? The recommendation might be from a family member, a friend, or someone who is or is perceived to be trustworthy or credible (ie, do you feel more compelled to listen to someone who wears glasses and a white coat?) but on receiving that recommendation, I’m sure you would be more likely to buy that product or service yourself, right?

Likewise, if someone you knew or trusted made a complaint or raised concerns with a certain product or service, would you be more likely to avoid it? I think you would. But let’s assume for the moment that you’ve got a good product or service, how do you get the message out so that you can get the recommendations or testimonials that push business your way?

Viral marketing – indirectly marketing to the masses

Marketers are always trying to come up with different strategies to spark word of mouth marketing, and this often brings to mind viral emails or viral Youtube videos. When it works, it spreads like wildfire and with the internet, it’s easy to see the number of hits or interest shown as it can quickly soar into the millions and continue to grow exponentially.

Sure – large scale viral marketing is great for mass exposure. It’s like standing on a box in the middle of the street with a megaphone and shouting at the crowd, however it still doesn’t beat the power of face to face networking, especially when it comes to building a relationship or connection with your consumers rather than just drawing attention to yourself. Without a relationship or connection, drawing attention to yourself is just that – it’s there for a moment and gone the next. Retaining public attention requires more commitment and with commitment comes a relationship.

The reality is that we all prefer to do business with businesses/people that we know or are familiar with – and even more with those that we have a relationship with or even like . Big brands rely heavily on this and that’s why we’re constantly bombarded with their branding in every aspect of our lives. They become part of us and so we trust them (to varying degrees). But what if you’re not a big brand?

Stay tuned… there’s more coming

In the second part of this article, I’ll be discussing the benefits of small business when it comes to business networking and some of the options available to you if you’re in small business when it comes to networking for business.