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DomaCom Australia obtains landmark ATO agreement on related-party tenants in SMSF-owned homes

As long as a trustee does not maintain a self-managed super fund for the purpose of housing a related party, the ATO will not pursue an SMSF if the related party becomes a tenant.

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Related parties of a mixed-asset super fund might end up becoming tenants in the fund’s residential investment

DomaCom Australia Ltd (ASX:DCL) has reached a landmark clarification agreement with the Australian Tax Office about how the office will apply a sole purpose test to self-managed superannuation funds and their trustees when a related party is a tenant in a residential property held by the fund.

The company reported today that the ATO had agreed to certain “conditions under which the ATO will not apply compliance resources regarding the Sole Purpose Test (SPT) for an investment by an SMSF into a DomaCom sub-fund that owns a residential property, where a related party of the SMSF may happen to become a tenant”.

Shares up 9%

Investors responded positively with shares up as much as 9% to an intra-day high of 9 cents after trading at 6.3 cents on October 1.

DomaCom reported the conditions include that a trustee using the DomaCom Platform make an SPT declaration to ensure that fund trustees “do not engage in behaviour that suggests they are maintaining their SMSF for the collateral purpose of providing accommodation to a related party tenant”.

The recorded declaration can then be shared with the ATO and auditors of the self-managed super fund.

A "practical clarification"

DomaCom Australia founder and CEO founder Arthur Naoumidis acknowledged the landmark, saying “I am pleased to confirm that DomaCom has obtained ATO confirmation on how SMSF trustees in DomaCom can satisfy the Sole Purpose Test after the Full Federal Court of Australia judgement in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2018] FCAFC 122.

“We thank the ATO for providing this practical clarification so that SMSFs can continue to invest in DomaCom property sub-funds where, subject to certain protocols being observed, related parties may happen to become the tenant of the underlying properties.”

DomaCom’s investment platform includes a fractional investment product that allows for property ownership to be shared among a number of parties or legal entities.

These parties can include self-managed super funds.

Related parties might become tenants

Now that parameters are in place for when the tax agency will not apply the sole-purpose test to DomaCom sub-fund investors, a situation may emerge where related parties ؙof self-managed super funds with a mix of investments end up leasing or living in a residential property that is an SMSF asset by way of a DomaCom sub-fund investment.

Tenants of residential properties change over time, so DomaCom’s Aussiegolfa-interpretation agreement with the ATO puts both the company and SMSF trustees on the front foot.

The agreement will allow the investment platform developer and super fund trustees to anticipate or deal with a situation where a related party — of a DomaCom-sub-fund SMSF investor — might happen to become a tenant of a DomaCom sub-fund property down the track.

DomaCom will concurrently hold its annual general meeting at the offices of Grant Thornton in Melbourne and Sydney and online at 11am AEDT on November 11, 2019. To register for the webcast, visit https://domacom.com.au/agm-registration at least 24 hours beforehand. Shareholders attending by webcast will only be able to cast their votes by proxy.

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Price: 0.06 AUD

ASX:DCL
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Market Cap: $14.7 m
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