“In 2020 the ATO released SMSF RB 2020/1 on property investment, one of only two regulation bulletins the ATO has released. The first was released in 2018 on the use of reserves in an SMSF,” Ellem said.

“The fact the ATO felt compelled to release RB 2020/1 was due to its concern of seeing new and emerging arrangements [in property development] that potentially posed risks to SMSF trustees, their members and their benefits.”

Ellem said the opening statement of the latest bulletin should be noted as it sets out the intention of the ATO and the Commissioner and offers a “roadmap” for SMSFs and their trustees.

The exact wording of that statement is:

“To the extent that this board can provide guidance to you, and you apply it in good faith to your own circumstances, the Commissioner will administer the law in accordance with the guidance outlined in this bulletin”.

Ellem notes that one of the first things the bulletin states is that the ATO considers property development in the SMSF space a legitimate investment option and the Commissioner does not have any concern with funds investing in property development, where it complies with the SIS Act and regulations.

“Ultimately, the ATO is saying ‘follow the rules and you'll be cool’ and it will only step in when these types of investments, or property developments cause concerns,” he said.

“For example, the ATO will take a closer look if property investments or developments are used inappropriately to divert income into a superannuation environment, or specially taxed environments, or if SMSF assets are used to fund property development ventures in a manner that is inappropriate for – and sometimes detrimental to – retirement purposes.”

He continued that the opening statement suggests the ATO is concerned about the tax implications of property development within the SMSF space.

“Property development ventures may also involve complex structures and how they are implemented can lead to inadvertent but serious contraventions of the regulatory rules,” he said.

“If you make it complex, mistakes are likely to be made and clients need to understand that so they can follow the steps and do it correctly.”

If an SMSF is considering property development, Ellem said the ATO bulletin also strongly encourages advisers to instruct clients to seek independent professional advice.

“In some cases, advisers may also wish to approach the regulator for advice, and they should raise this possibility with their clients,” he said.

“They might get advice and decide not to go through with it. The investment in getting that advice not only protects them, it can protect the adviser and the accountant.”