SMSFs (self managed superannuation funds) have been carrying on property development activities ever since SMSFs came into existence. Yet despite that there is still a common concern that such activities will cause the SMSF to become non-compliant, or subject to penalties, on the basis that such activities, and in particular undertaking a property development business, are prohibited.
There is no express prohibition on SMSFs undertaking property development activities or a property development business. Rather, the question is whether such activities cause the SMSF to breach the provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act) or the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) or adverse tax consequences under the Income Tax Assessment Act 1997 (ITAA97) or the Income Tax Assessment Act 1936 (ITAA36).
This position has been confirmed in the ATO’s SMSF Regulator’s Bulletin SMSFRB 2020/1 (Bulletin). In the Bulletin the ATO has confirmed that an SMSF can carry on a property development either directly or through an entity or joint venture. However, the ATO has used the Bulletin to raise its concerns about SMSFs being involved in such arrangements.
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