Issue
Has a contravention of section 66 of the Superannuation Industry (Supervision) Act 1993 (SISA) occurred where the trustees acquired a residential property from the members?
Decision
Yes. A contravention of section 66 of the SISA has occurred.
Facts
The superannuation fund purchased a residential dwelling from the members.
The property had been owned by the members since 1994 and was rented to third parties. This practice continued, after the superannuation fund acquired the property. The residential dwelling was the sole residential dwelling owned and rented by the members.
Reasons for Decision
Section 66 of the SISA generally prohibits the trustee of a regulated superannuation fund from acquiring an asset from a related party of the fund. One of the exceptions to this general prohibition is if the asset is business real property of the related party acquired at market value (where the fund is a superannuation fund with fewer than five members).
The trustees acquired a residential property that had been used for rental purposes by the fund members. For real property to meet the definition of 'business real property' in subsection 66(5), it must be '....used wholly and exclusively in one or more businesses'.
Paragraphs three to five of Taxation Ruling IT2423 is also relevant in determining whether the letting of property amounts to carrying on a business. In particular paragraph 5 states 'An individual who derives income from one or two residential properties would not normally be thought of as carrying on a business.'
The renting of the residential property did not constitute carrying on a business. The property acquired from the members was not 'business real property' as defined in subsection 66(5) of the SISA.
As the trustees of the superannuation fund acquired an asset from a related party, which did not meet any of the exceptions included in subsection 66(2) of the SISA, there has been a contravention of section 66 of the SISA.