ATO ruling aims to clarify assets

Neville Hughes.
Neville Hughes.

SINCE 2007, Self-Managed Super Funds (SMSF) have been able to borrow.

In 2010, the rules governing SMSFs and borrowing were significantly amended, setting out a list of conditions that an SMSF needed to comply with for the borrowing to be legal.

Many investors including primary producers took advantage of these rules and purchased property in their SMSFs; this property could then be leased by their primary production business.

One of the conditions in the 2010 amendments was that the asset being acquired with the borrowed funds must be a "Single Acquirable Asset."

"To be treated as a single acquirable asset the assets are required to have the same market value as each other and to be identical to each other."

Since its introduction there has been some confusion (and debate) over what a "single acquirable asset" actually means.

The Tax Office has now issued a ruling to clarify these conditions. This ruling suggests that adjacent blocks of land can be a single identifiable asset but only where they are "distinctly identifiable as a single asset." This will only be where the different blocks are unified by a physical object, which is permanent in nature, fixed to the land and is significant in value relative to the land.

The examples indicate that two blocks of land with fencing, crops or an irrigation system joining them are not considered a single identifiable asset. This is because they are not considered permanent.

However, if a large shed was constructed over both titles and that shed was a significant part of the value of the land, then it would be considered a "single identifiable asset"

The ruling is not saying that an SMSF can't purchase an asset with multiple titles if it is not a single identifiable asset, it just can't borrow to do so.

The information contained in this article is general in nature and has been prepared without taking into account your objectives, financial situation or needs.

Neville Hughes is managing director of GTC Financial, Gladstone.

Topics:  finance for farmers, neville hughes, self managed super funds



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