Property investment through SMSFs
Our SMSF is in pension mode, and the fund has purchased a block of land that has recently been subdivided into two torrens title allotments. The council has approved our development plans, and we intend to build on both properties, and then immediately put them on the market to sell.
Can you advise if this is allowed under the Australian Taxation Office (ATO) rules?
We have been advised that if we did build we would have to sit on the properties for some time and then they could be sold without any penalty being levied by the ATO.
The main reason someone might have suggested you rent out the property is because of the sole purpose test. That is, you could be considered to be running a business in the super fund, if you are doing this sort of development and property turnover on a regular basis. However, if this transaction is a one-off, then there is less likelihood that the ATO would consider that to be the case. It is highly recommended that you get proper legal advice that takes into account your entire situation, as I have only received the barest of details here. The properties would still need to be developed at arm’s length and on commercial terms – that is, you don’t want to be banging in nails yourself, as that changes the development facts.
Clarification on dividends
Our super fund purchased shares in ANZ on March 22, with a settlement date of March 27. We intend to sell the shares the day after the ex-dividend date, but I was hoping Ian could clarify a few points:
– Does the 45-day rule apply from the purchase date or the settlement date?
– Exemption from the 45-day rule applies where total dividends in a financial year are less than $11,667. Does this relate to just the one company; in this case ANZ?
– The article suggests we should hold the stock at least until the record date ie 15th May to ensure we receive our cheque. Given the emphasis on selling the day after ex-dividend, is this mandatory or precautionary, as arguably we could be selling in the midst of a “selling” period?
– The 45-day rule starts from the purchase date.
– The exemption is not for just one company, it applies when total dividends on all investments for the year are less than $11,667. Actually, the rule is for when total franking credits for the year are $5,000, which happens to equate to $11,667 in fully franked dividends.
– You are entitled to the dividend on the day the shares go ex-dividend and so can sell on that day. Anyone who buys on ex-dividend day is not entitled to the dividend. I was being overly cautious in suggesting to hold on until the record date, usually four days later, which is when the books close. All transfers should have been processed by then.
May budget and superannuation
I realise that we don't know what the government will choose to do about superannuation in the May budget, but I think it would be a good idea for Eureka Report to put together a submission.
Editor’s response: Thanks for your letter. As you know, here at Eureka Report, we are committed to informing and educating our members on how best to plan for retirement. We have also established a dedicated superannuation website, Save our super, that you may find of interest.
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