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Re: Lease and Permits

Initiate

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Replies 4

Hello,

 

I have a client who rents a factory that is owned by his SMSF which has borrowings against it.

 

Can he do his own lease between his company and the SMSF and sign and does both members of the SMSF have to agree and sign the lease?

 

Also, when the factory was purchased it had a mezzanine which the client who is renting the factory has turned into a bedroom and lounge room, is this legal and should this have required permits?

 

The walls are solid stud walls not partitions.

 

Thank you

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Most helpful response

Taxicorn Registered Tax Practitioner

Replies 1

I have encouraged the client to seek legal advice however he does not want to pay the fees and has since created his own lease (not a proper commerical lease) but without the signature of all company directors and SMSF trustees so will go back and ask that this be done.

 

The lease needs to be legally effective, in order to comply with arm's length dealing  S 109.

Maybe send copy to auditor to test whether it is acceptable.

 

Lease may not need all company directors to sign  -  check company's constitution for any signing rules.

SMSF signing requirement is usually at least 2 trustees/directors.

 

The factory is not used in the same way your clients was. This particular business trades soley in tools, fasterners, nuts and bolts etc.

 

There is really no need for the purpose of the bedroom/lounge etc as it is not being rented, I just was wondering if such a construction would require permits from the council?

 

Cannot give any opinion give any opinion on permits  -  this is determined by local govt rules, zoning, etc

I do think getting a permit for residential use of a commercial property would be proof that the property would fail the BRP rules for the LRBA.

 

Ultimately, the property could be treated as an IHA and then could no longer be owned sold by the SMSF.

https://www.blgba.com.au/insights/smsf-investment-rules-business-real-property

 

 

 

4 REPLIES 4

Taxicorn Registered Tax Practitioner

Replies 3

I have a client who rents a factory that is owned by his SMSF which has borrowings against it.

 

Can he do his own lease between his company and the SMSF and sign and does both members of the SMSF have to agree and sign the lease?

 

Anyone can do their own lease, but it would be prudent that they get a proper lease done by a lawyer.

If they are unwilling to do that, then they should at least get a proper commercial lease document from one of the AUS website providers. Signing needs to be as SMSF trustees and company directors.

 

I am assuming that "borrowings" means LRBA done properly.

 

Also, when the factory was purchased it had a mezzanine which the client who is renting the factory has turned into a bedroom and lounge room, is this legal and should this have required permits?

The walls are solid stud walls not partitions.

 

This depends on whether this has affected the property's BRP status  -  depends on the facts.

 

I have known clients who would stay overnight in their factory if they were running a long computer machining process,

just to make sure that nothing caught fire, or whatever.  If that was the purpose, they would not need a lounge room.

I they are planning on letting someone live there, then the property is probably no longer BRP  see ruling.

 

https://www.ato.gov.au/law/view/document?DocID=SFR/SMSFR20091/NAT/ATO/00001

 

 

 

 

Initiate

Replies 2

Hi Bruce,

 

Thank you for your reply.

 

I have encouraged the client to seek legal advice however he does not want to pay the fees and has since created his own lease (not a proper commerical lease) but without the signature of all company directors and SMSF trustees so will go back and ask that this be done.

 

The factory is not used in the same way your clients was. This particular business trades soley in tools, fasterners, nuts and bolts etc.

 

There is really no need for the purpose of the bedroom/lounge etc as it is not being rented, I just was wondering if such a construction would require permits from the council?

 

Thank you

Most helpful response

Taxicorn Registered Tax Practitioner

Replies 1

I have encouraged the client to seek legal advice however he does not want to pay the fees and has since created his own lease (not a proper commerical lease) but without the signature of all company directors and SMSF trustees so will go back and ask that this be done.

 

The lease needs to be legally effective, in order to comply with arm's length dealing  S 109.

Maybe send copy to auditor to test whether it is acceptable.

 

Lease may not need all company directors to sign  -  check company's constitution for any signing rules.

SMSF signing requirement is usually at least 2 trustees/directors.

 

The factory is not used in the same way your clients was. This particular business trades soley in tools, fasterners, nuts and bolts etc.

 

There is really no need for the purpose of the bedroom/lounge etc as it is not being rented, I just was wondering if such a construction would require permits from the council?

 

Cannot give any opinion give any opinion on permits  -  this is determined by local govt rules, zoning, etc

I do think getting a permit for residential use of a commercial property would be proof that the property would fail the BRP rules for the LRBA.

 

Ultimately, the property could be treated as an IHA and then could no longer be owned sold by the SMSF.

https://www.blgba.com.au/insights/smsf-investment-rules-business-real-property

 

 

 

Initiate

Replies 0

Thank you for your assistance Bruce, I really appreciate it Smiley Happy