Lyn Formica, head of education and content for Heffron, said in the most recent ASF Audits podcast that SMSFs with regulation 13.22c entities need to have a deposit with an authorised deposit-taking institution.
“It [is relevant] if you’re going into an entity like that because you’re wanting to invest in foreign assets, and you’re investing in a country that doesn’t recognise the trust structure as we know them,” Formica said.
“Often you’re going into a super fund, buying shares in a foreign company, and then the foreign company is then owning that property. You’ll want your rent going into a foreign bank account, and that’s just not possible. You’re going to breach the rules, your structure, and your investments are going to end up as an in-house asset. You’ve got to have an Australian bank account connected to those reg 13.22 entities.”
Shelley Banton, head of technical for ASF Audits, added one of the ways around the problem is to put a real estate agent in place to oversee the property and tenancy.
Formica agreed that this is one of the most effective ways around the problem.
“We’ve either had a real estate agent or sometimes, particularly in the US, if the tenant is effectively a government body, they sometimes struggle and resist, but essentially, using a real estate agent is the only option we’ve got if a tenant can’t pay it directly into an Australian bank account,” she said.
“It does provide some logistical issues, but trustees should be aware of that before they get into something like this, and sometimes an SMSF is not the right structure for some of these investments.”
Banton said other exceptions to the in-house asset rule deal with life insurance policy, as well as investment in a reg 13.22c trust, which also links back to a deposit with an approved deposit-taking institution, meaning it has been a deposit with a bank account that’s listed in schedule four of the Superannuation Industry (Supervision) Act.
The most common exception to the in-house asset rules is business real property, Formica said.
“If the asset that you’re leasing to a related party is business real property and subject to a legally enforceable lease arrangement, then that’s exempt. You’re allowed to do that,” she said.
“Essentially, there’s no limit on the amount of a superannuation fund assets that you could invest in business real property and lease it back to related parties, so long as you’ve got that legally enforceable lease arrangement in place.”
