Keeping it real with Jeff Kennett

Superannuation has some exceptional rules around property and business activity, especially when it relates to SMSFs.

If there will be pressure here for Kennett, it will be in relation to political entitlements but not superannuation. (Aaron Francis/The Australian)

Seven West director and former Victorian Premier Jeff Kennett is in a spot of bother over renting an office from his wife’s SMSF. It is alleged that Kennett has paid up to $200,000 for the office rental which is in turn billed to the taxpayer.

As far as superannuation rules go it is absolutely fine because it turns out the Kennett’s are keeping it “real”: That is the office comes under what is known as “business real property” in the superannuation dictionary.

Superannuation has some exceptional rules around property and business activity. If there will be pressure here for Kennett, it will be in relation to political entitlements but not superannuation. As long as a property is wholly devoted to business then it can be treated in an exceptional way by a DIY super fund — and the laws around related parties just don’t apply.

Felicity Kennet’s super fund currently holds the inner-city office building (the oldest corner store building in Melbourne’s start-up zone, Cremorne). Since it is a “business real property” Felicity’s fund can rent it to anyone — even her husband.

In fact, the rules around business real property are so comprehensive Jeff could have rented a vacant block of land from Felicity’s SMSF as long as it fitted the superannuation definition.

But the story might have been very different if Kennet had been renting a residential property from the fund — that does not come under the rules.

Unless, yes that’s the beauty of SMSF investing there is always an exception, he had been using the house as a business and the nature of the business was that he had to be there all the time for example if Jeff was an emergency dentist on call 24 hours a day.

Such discrete exceptions lend all sorts of possibilities to SMSFs and may be one of the reasons they remains popular despite an extended period where successive governments of all flavours have done nothing to encourage DIY super and many things to make it less attractive.

Nonetheless, if you know the rules you can capitalise on such opportunities. A theoretical example: the hobby farm. Hobby farms such as wineries are no longer allowed as tax protected assets under the current legislation.

Unless, of course, it offered a case replicating the emergency dentist. If the hobby winemaker had a house in the vineyard and there were times the winemaker needed to be there round the clock — even though, well, the winery was not the main employment of such a person, well there are exceptions there too.

It’s an exceptional business superannuation, especially when it comes to SMSF. Mr Kennett has called the public commentary on his SMSF affairs ‘mischief’ making.