A recent Australian Taxation Office (ATO) interpretive decision has indicated a self-managed superannuation fund (SMSF) can acquire an asset that has an associated mortgage.
Doubt as to whether an SMSF could purchase a mortgaged asset has existed due to concerns such a transaction would breach regulation 13.14 of the Superannuation Industry (Supervision) (SIS) Regulations.
This section of the SIS regulations specifies an SMSF trustee must not give a charge over or in relation to an asset of the fund.
However, ATO decision ID 2011/81 stipulates a situation where a trustee purchases an asset already subject to a charge is not deemed to be a condition where the trustee has issued a charge over the asset.
The conclusion from the regulator being regulation 13.14 only prohibits trustees from creating a charge over an asset of the fund and not merely recognising an existing charge over a fund’s asset.
“Further the reasoning, it seems, would apply to a situation where the charge arises in respect on the asset after acquisition – for example, where the charge arises by reason of law or by court decision – so long as the trustee does not create the charge,” Super Central said in reviewing the ATO interpretive decision.
The regulator noted the decision was only made in the context of SIS regulation 13.14 and when considering a course of action like this, trustees also had to be mindful of other operating parameters, such as the sole purpose test.
