27 March 2020
Construction funding has become more restricted over the last few years, leading property developers to seek out alternative means to get projects off the ground.
This collides with an environment where interest rates have hit a record low, and people might be tempted to look to alternative types of investments in order to obtain a higher return.
Developers may also be tempted to use their own self-managed super funds in which to conduct property development.
This has led to an increase in these types of arrangements, which has now caused the Australian Taxation Office (ATO) to release a Regulator’s Bulletin this year for anyone looking to use their self-managed super fund to undertake property development. The Bulletin serves as a timely reminder to anyone looking to use their self-managed super for alternative investments or business ventures, despite how tempting the returns may appear.
Whilst this may have gone relatively unnoticed by the ATO in the past, it is now firmly on their radar and they have issued a warning to anyone considering such an arrangement.
The ATO is concerned that funds participating in arrangements or schemes in connection with property development are not complying with:
These arrangements can also be a nightmare from an estate-planning perspective, if a person is unfortunate enough to die or become permanently disabled before a project is finished. As can owning business real property in a super fund. Often there will not be sufficient liquidity to pay out death benefits, leaving dependants high and dry and the fund falling into non-compliance again. Additionally, if you decide it is necessary to remove the assets from the fund at a later point, potential duty and taxation issues may be triggered.
If you are considering to enter into such an arrangement, or any type of alternative investment through your self-managed super fund, make sure you get comprehensive advice. The cost of non-compliance will almost certainly erode any anticipated return.
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.