Tax & Accounting Blog

Can an SMSF invest in a Marina Berth as “business real property”?

Blog, Superannuation, Tax October 29, 2013

Some trustees of self-managed superannuation funds (SMSFs) with experience in the boating industry have identified marina berths as a counter-cyclical investment opportunity to help meet their SMSF’s retirement income objectives.

This begs the question – can an SMSF acquire a marina berth?

In short, there is nothing specific in the SIS legislation to prevent a trustee of an SMSF from investing in a marina berth, provided that it complies with all of the superannuation investment rules (eg the sole purpose test, in-house assets, arm’s length dealing, investment strategy etc). However, a trustee of an SMSF can only acquire a marina berth from a member or a related party if the marina berth falls within the definition of “business real property” under s 66(5) of the SIS Act. Likewise, an SMSF could only lease a marina berth to a related party if it qualifies as “business real property” and falls within the in-house asset exemption.

Writing in Weekly Tax Bulletin Issue 45 (25 October 2013), Thomson Reuters’ Senior Tax Writer, Stuart Jones, explores the circumstances in which a marina berth could potentially qualify as “business real property” under s 66(5) of the SIS Act. Importantly, Jones notes that the “business use test” would prevent an SMSF from leasing a marina berth to a member or a related party to moor the boat of a member (or a related party) for private purposes.

If a marina berth can qualify as business real property, an SMSF may be able to acquire a suitable marina berth and lease it to a related party at an arm’s length rate for exclusive use in a marina management/leasing business (or a charter boat business). Similar to typical SMSF business real property arrangements involving commercial property, the arm’s length lease payments are deductible to the related party business, while the SMSF would be taxed at 15% on the net rental income (or tax exempt in pension phase).

While the Tax Office has not provided any specific guidance on this issue, an online search using Thomson Reuters’ Westlaw AU reveals some legal authority to support an argument that floating jetties (or pontoons) annexed to the seabed could potentially be considered “land” (and therefore “real property”).