Off the plan purchasers

The Draft Ruling provides that a SMSF Trustee can enter into an off the plan purchase and use borrowed monies to complete the purchase.

Typically, in an off the plan purchase arrangement, a contract to purchase is entered into and a small deposit, say, 5% of the contract price, is paid at the time of signing the contract.  The contract is an agreement to purchase a strata unit if and when the strata unit is constructed.  Once the strata unit is constructed, the purchaser must then provide the balance of the purchase monies.

The Draft Ruling provides that so long as the trustee finances the deposit from its own resources, the trustee could enter into a limited recourse borrowing arrangement for the balance of the purchase price.

There was previously some speculation that such an arrangement did not satisfy the “single acquirable asset” requirement.  The concern was that the trustee acquired on signing the contract one bundle of property rights and then once the unit was constructed, the bundle of property rights was replaced by the physical structure.  The better view is that an off the plan purchase is a contract to buy property if and when the property comes into existence (ie is constructed).