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Your Association at Work - January/February 2008
Water rights and SMSFs… and so it continues!
In the last 12 months, the NTAA has asked members to nominate clients who would apply to the Commissioner for a determination allowing a related party to sell water rights to, and/or lease water rights from, their SMSF.
Editor: The SMSF investment rules allow a fund to acquire business real property from a related party, including farmland, even if it includes the farmer's home.
However, if water rights are attached to the land, the fund may breach the investment rules, as they are not considered "business real property".
We advised members to approach the ATO on the basis that senior ATO staff had informed the NTAA that these applications would be viewed "sympathetically" as it was reasonable to treat water rights as business real property, since these rights can often be on title.
In particular, we understood that the ATO appreciated that water rights were so closely linked to the underlying property that they should receive the same investment concessions as business real property.
Unfortunately, two of our members who made this application received a negative reply from the Commissioner.
In other words, the Commissioner refused to exercise his discretion in relation to the fund's water rights.
As a result, we recommend that members do not apply to the Commissioner for exercise of his discretion under the in-house asset rules. It would appear the ATO is now less "sympathetic" to this issue and they have commenced denying these applications.
In the meantime, the NTAA has been in contact with the ATO and we are also pursuing the National Farmers' Federation to rectify this untenable situation.
If you have any queries regarding this issue, please contact Andrew Gardiner on (03) 9209 9999 and he will be happy to discuss any further developments.
