ATO Taxpayer Alert - In-House Asset Rules

The ATO has issued a Taxpayer Alert (TA 2009/16) dealing with arrangements designed to circumvent the in-house asset rules.

Generally, an SMSF cannot have more than 5% of its assets in related party assets (related party assets are called in-house assets).  There are various exceptions to the 5% rule, principally the business real property exception.

The arrangements which have caught the eye of the ATO involve SMSFs and related trusts entering into joint venture agreements by which the SMSF contributes capital to the joint venture to finance the acquisition of property (usually real estate) and its development.  The SMSF is entitled to a portion of the sale proceeds once the property has been developed and sold.

The ATO considers these arrangements may breach the in-house assets test as well as the sole purpose test.

Trustees of SMSFs which have or are considering entering into such arrangements should seek advice from their SMSF advisers.