Borrowing by Self Managed Superannuation Funds (“SMSFs”) has been allowed under strictly controlled circumstances for over five years. Over that time the “grey areas” have gradually become a little clearer both through legislative change and the issue of very detailed rulings by the ATO.
In May this year the ATO issued a new major ruling. It is a very useful document and contains many examples of what the ATO considers can and can’t be done. Some of those examples are particularly relevant to farming properties.
One of the key concepts of the legislation is the concept of borrowing to acquire a “single acquirable asset”. Most farming properties will be comprised in more than one land title. If those titles can be dealt with separately, in many cases the farm will not be regarded as a single acquirable asset even if from a practical viewpoint, it would be unlikely that any part of the farm would be dealt with separately from the other.
If a farm was not regarded as a single acquirable asset, it may still be possible to proceed with a borrowing by breaking up the transaction into separate loans over each title. There will be practical problems in doing that however particularly due to the likely requirements of financiers and the duplication of borrowing expenses.
The ATO ruling also includes some useful examples of the distinction between “repairing” and “maintaining” a farm, which is allowed, and improving the farm which is not . For instance, replacing a section of existing cattle yards or fencing is a permissible repair whereas adding a further set of cattle yards or additional fencing would be an improvement.
Involving your SMSF in a farming business requires expert financial and legal advice. Borrowing is only one of a number of alternatives and there are ongoing operational issues relating to the arrangements between the entity that conducts the farming business and the SMSF.
There are many pitfalls for the inexperienced or ill advised. At Everingham Solomons we have the experience and the expertise to work with you and your financial advisors to achieve the best outcome for you because Helping You is Our Business.
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