The Federal Court has ruled a situation where an SMSF invests in property through a sub-fund where that property is subsequently leased to a related party will still be captured by the existing in-house asset rules.
Specifically, fractional property investing provider DomaCom had been challenging the concept of whether a residential property either partly or fully owned by an SMSF, via an investment in a sub-fund, could then be leased to a child of a member of the SMSF in question without the asset being classified as an in-house asset.
The court ruling means an SMSF can acquire a full or part share in a residential property by way of a sub-fund and lease that property to one of the fund member’s children as long as the asset value does not exceed 5 per cent of the SMSF’s total asset value.
While unfavourable, the Federal Court decision has no bearing on DomaCom’s current business model.
The court is in the process of deciding about what orders should be made as a result of the decision.
DomaCom chief executive Arthur Naoumidis said: “After the court hands down its orders, we will study the judgments closely and make a further announcement after the effect, if any, of the decision on the DomaCom Fund.”