Assign lease to SMSF

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Vistaman, 30th Sep, 2017.

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  1. Vistaman

    Vistaman New Member

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    Hello, we are negotiating with a telco who wants to lease a small area (120Sq meters) of our property to install a tower.
    They will pay us an annual fee of, let's say, $10k with 3% increase for a 20 year term.

    Our family home is situated on the property.
    We do not earn an income from the property, it isn't part of a business.
    We are in early 60s, still in accumulation phase.
    Can we assign the lease of the 120sq meters to our SMSF?

    There are several companies who buy-out the lease on telco towers for a fixed sum, usually 9-11x annual fee, so I'm wondering, can our SMSF do this?

    We like the idea of the 20 year income stream within the superfund that could otherwise attract income tax (as we already have other revenue that is outside of super)

    It's not unusual for other telcos to co-locate antennas on existing towers, if this is offered a seperate fee is negotiated.

    Any ideas of bring this 120 sq meters into our SMSF?
    Can we start a telco leading business, do the assert can be sold to the fund?:)

    Vistaman
     
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  2. AnthonyK

    AnthonyK Active Member

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    Hello Vistaman and All
    Its an interesting query.
    It is possible for a SMSF to acquire real estate from a related party - fund Member as there is an exemption in SISA s66 which applies to a farm property used in primary production. It can also apply to a rural property where the area of the land exceeds 2 hectares (5 acres). I consulted on 2 such prioperties last year which ran cattle breeding enterprises on the land. However the cattle were owned by a family company which leased some of the farm property so that the cattle could be subject to an agistment contract on commercial arms length.terms (see SISA s65 and SISA s109).
    What is the size of your property? does it exceed 2 hectares and does it include a home dwelling?
    What you want to do constitutes a business activity and the land is passive which means a rather special SMSF deed to own the livestock and have a lease for the land which could be in a second SMSF if you want to make your enterprise tax efficient. Your fund would not be able to acquire your cattle as the only s66 exception is for business real property but your could sell them to the market contribute the proceeds to super and then buy new animals from the market place.
    Regards
    AK
     
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  3. Vistaman

    Vistaman New Member

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    Thanks for the detailed response AK, we are on 4 acres. :(
    A telco lease is an ideal investment for a smsf.

    Vistaman
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think this would be a breach of the SIS Act - the SMSF is prohibited from acquiring an asset from a related party. But there is an exemption for business real property which this possibly could qualify as. But it would need to be an assignment at market value if it could be done. Also consider the CGT and stamp duty consequences.

    Seek legal advice.
     
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  5. Vistaman

    Vistaman New Member

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    In Specie transfer doesn't apply?
    Is a lease an asset or something else?

    In respect to market value, 9-11times the annual rent is considered market value to capitalise a 20 year/2.5% telco lease.
    This is one option of course, to sell the lease to a third party and deposit the proceeds.
    Numerous companies acquire telco leases.

    Vistaman
     
    Last edited by a moderator: 3rd Oct, 2017
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    No sure what you mean by inspecie transfer.

    The asset is the lease. It is a chose in action that can be assigned.
     
  7. SMSFCoach

    SMSFCoach Member

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    TerryW is right. I can see the benefit but you are trying to massage circumstances to suit the outcome you desire and this just won't fit in with SMSF regulations (I don't mean this to sound harsh). You currently own the land and it is your main residence and is not a business real property so there is no way for it or any part of it to be acquired by the SMSF. Likewise the SMSF cannot buy the rights to the telco tower lease from you as again that is not business real property and therefore it cannot acquire those rights from you.

    It would be a good investment for the fund but in the circumstances it can't meet the acquisition rules.
     
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  8. AnthonyK

    AnthonyK Active Member

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  9. AnthonyK

    AnthonyK Active Member

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    Hello Vistaman and All
    If your land was > 2 hectares which in CGT law is the "curtalige" which describes the limit of the domestic residence and outbuildings in all rural properties which exceed 2 hectares and includes primary production property mentioned in SISA s66.
    This is your solution
    You need to sever the tower from your land as below so there are no domestic residence issues.
    Property laws describe anything permanently attached to the land as "appurtenances" but this does not include removable structures such as relocatable temporary buildings etc.
    These can be attached by with a nut and bolt to screw-piles in the ground and can therefore be moved when required.
    So your way forward is to have the tower attached as a relocatable item to a base which is affixed to the land - this makes the tower a separate asset from the land.
    1. You can then create a ground rent lease with your SMSF for the tower area on your land on full commercial arms length terms based on a valuation of the full property area and the area of the tower as a percentage. This takes care of SISA s65 and s109.
    2. Your SMSF could then enter into a lease with the owner of the tower for the rental of the site.
    The tower would be a leasehold asset of the fund under the lease and the land rental a liability.
    Since the tower lease is a commercial lease it would be subject to Gst and you should consider whether you should register the SMSF for Gst but I suspect it is not worthwhile.
    Have a read of SMSFR 2009/4 which covers some of these matters.
    AK