Fractional property investment house DomaCom has had the full Federal Court hand down a favourable decision with regard to the leasing to a related party of a property held in a sub-fund where an SMSF is the owner of units in the sub-fund.
The decision comes after Aussiegolfa Pty Ltd as SMSF trustee of the Benson Family Super Fund (BFSF) appealed an earlier Federal Court ruling that deemed the fund had breached the sole purpose test because it had leased a property partly owned by the SMSF via a sub-fund of a managed fund to the daughter of the SMSF trustee’s sole director, Mr Benson.
The reason being the investment in the sub-fund had been made specifically to provide Mr Benson’s daughter with a place of abode.
In a statement issued to the Australian Securities Exchange, DomaCom said: “The court held that the primary judge was incorrect in concluding that the leasing of the residential property held by the sub-fund to a child of a member of the BFSF was a breach of the sole purpose test.”
DomaCom chief executive Arthur Naoumidis said: “DomaCom is very pleased to have the court confirm that it was not a breach of the sole purpose test when a related party of the BFSF rented a property held by the DomaCom Burwood sub-fund.
“We believe that this finding, on its own, represents a milestone for the SMSF industry.”
However, the Federal Court’s original ruling that the DomaCom sub-fund was a related trust of BFSF was upheld upon appeal. The primary judge deemed the sub-fund to be a related trust because the remaining 75 per cent of the units in the sub-fund were owned by Mr Benson’s sister (25 per cent) and Mr Benson’s mother (50 per cent).
This means the property will still be regarded as a related-party asset and cannot exceed 5 per cent of the total value of the SMSF’s assets.
DomaCom will review this decision to analyse its effect on the DomaCom Fund. The fractional property manager noted it had already amended the fund’s disclosure documents since the Burwood sub-fund’s creation in 2015.
“Accordingly we will analyse the effects of the judgment on sub-funds created using the current version of the DomaCom Fund constitution and disclosure documents,” it said.
“If our analysis determines that it is necessary, we will consider amending our constitution and disclosure documents to address this issue with respect to future sub-funds.”