SMSFs, trusts and property development: part 1

A Matter of Trust

Taxation in Australia

Self-managed superannuation funds1 (SMSFs) have been carrying on property development activities ever since they came into existence. Such activities are either done directly by the SMSF or more commonly through a structure (typically, a trust). Yet, despite this, there is still a common concern that such activities will cause the SMSF to become non-complying, or subject to penalties, on the basis that such activities, and in particular undertaking a property development business, are prohibited.

There is no express prohibition on SMSFs undertaking property development activities or a property development business. Rather, the question is whether such activities cause the SMSF to breach the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA) or the Superannuation Industry (Supervision) Regulations 1994 (SISR) or adverse tax consequences under the Income Tax Assessment Act 1997 (ITAA97) or the Income Tax Assessment Act 1936 (ITAA36). In this first part of a two part article, I have first examined whether an SMSF can carry on a business. Second, I have reviewed the provisions of the SISA, the SISR and the tax legislation that must be considered when an SMSF carries on property development activities. In the second part of the article, I will review various structures under which an SMSF can carry out property development.

Download the full paper to continue reading: SMSFs, trusts and property development: part 1