With the destruction of properties caused by the bushfires, SMSFs may be wondering what to do with their affected properties. The options depend on three factors:
- whether the property is rented to a related party
- has an LRBA or not
- is fully destroyed or just damaged.
The majority of superannuation funds that own a farm land rent the land to a related party of the fund. If the fencing of the property has been destroyed, it is likely that an adjustment to rental income is required.
Likewise, a lot of leases relating to business real property have fixtures and fit outs owned by the lessor. It is important to ensure that the lease agreement is read and that the SMSF does not repair or replace assets that are owned by the tenant. This is even more important if the property is leased to a related party.
On the other hand, if a property was destroyed in the fire, insurance proceeds received will be paid to the owner of the asset. The proceeds are treated differently depending on what they are in relation to. If the insurance is for capital items, ie a destroyed building, the CGT provisions will determine the capital gain or loss incurred.
For assets that are depreciated, there may be a balancing adjustment depending on the written down value of the asset. If insurance covers loss of rent, it will be ordinary assessable income.
Find out more about what can be done with SMSF-owned assets affected by the bushfires by watching Effective PD’s webinar. This webinar also covers other topics like Superannuation Cap and Audit the Auditor Program.
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