Issue
Does an arrangement where a Self Managed Superannuation Fund (SMSF) leases a water licence to a related party give rise to an in-house asset as per section 71 of the Superannuation Industry (Supervision) Act 1993 (SISA)?
Decision
Yes. An arrangement where an SMSF leases a water licence to a related party does give rise to an in-house asset as per section 71 of the SISA.
Facts
A SMSF owns a water licence.
A related party of the SMSF wishes to lease the water licence from the SMSF.
Reasons for Decision
An in-house asset is defined within section 71 of the SISA as an asset of the superannuation fund that is a loan to, or an investment in, a related party of the fund, an investment in a related trust of the fund, or an asset of the fund subject to a lease or lease arrangement between the trustee of the fund and a related party of the fund.
Subsection 71(1) of the SISA excludes certain assets or transactions from the definition of in-house assets however none of the exclusions apply to the lease of a water licence.
Therefore, where the water licence is leased to a related party it will be an in-house asset of the SMSF. The trustee(s) of the SMSF would need to ensure that each year that the water licence is leased to a related party, the water licence and any other in-house assets do not exceed 5% of the total value of the investments of the fund.