SMSFs cautioned on administrative traps with foreign property
SMSF professionals have been cautioned on some of the compliance issues that can arise with foreign property in SMSFs, especially where clients may be secretly using the property for purposes other than investment.
Speaking at a recent Chartered Accountants Australia and New Zealand event, Miller Super Solutions founder Tim Miller said that foreign jurisdictions often have their own rules around how property needs to be held that can cause potential compliance traps for SMSFs.
“Some parts of Asia, for example, will require you to have a resident citizen who is on the title. Now if you’ve got that in an SMSF, how are you going to meet the definition of an Australian superannuation fund? So, you’ve got potential issues there,” he explained.
“The US, as with most other jurisdictions, don’t recognise Australian trusts and so there’s often a requirement to invest and hold the property via a limited liability company. Now if you hold that asset via a limited liability company, that now looks like a 13.22 arrangement, because you’re holding the property inside a company.”
The SMSF client will then need to think about what banking details they have linked to that, he said.
“Is the income going into a US bank account or is it flowing over here into an Australian bank account, because if it’s going into the US bank account, then are you satisfying the requirements of the approved deposit taking institution?” he said.
“So, when you’re buying property overseas, you need to be mindful of what issues might be associated with the holding of those properties.”
It is also often the case with foreign property, he said, that the members very conveniently state that they’re not living in the house.
“They say that they’ve living in Australia, but they’re a little bit shy in identifying who is living in the house in the country where their family is. I think that’s often been one of the issues that we’ve often seen administratively... using other jurisdictions to invest in property overseas for purposes other than investment returns,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.