ATO Interpretative Decision

ATO ID 2002/552

Superannuation

Retirement Income Entities: additional investment by self managed superannuation fund in a related trust
FOI status: may be released
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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Has a contravention of subsection 71(1) of the Supervision Industry (Supervision) Act 1993 (SISA) occurred where a self managed superannuation fund (SMSF) has made an additional investment in a related trust after 11 August 1999?

Decision

Yes. A contravention of subsection 71(1) of SISA has occurred where the SMSF has made an additional investment of units in a related trust after 11 August 1999.

Facts

The SMSF and related trust were established before 11 August 1999 where the SMSF is the sole beneficiary of the trust. Both trusts have the same corporate trustee.

The related trust purchased and paid a deposit for real property 'off the plan' prior to 11 August 1999.

The SMSF received further units in related trust after 11 August 1999 after making an additional investment in the related trust.

The related trust intended to sell the property before settlement but was unable to find buyer. It then borrowed money to settle the purchase after subsequent issue of units to the SMSF.

The property is leased at arms length to an unrelated third party.

Reasons for Decision

Subsection 71(1) of the SISA provides that an in-house asset of a superannuation fund includes investments in a related trust.

Section 71A of the SISA exempts such an investment from being an in-house asset if it was acquired before 11 August 1999. An investment is also exempted if it was acquired after 11 August 1999, but where that acquisition was made under a contract that was entered into before that date. In both circumstances the investment must not have been an in-house asset under the former rules.

Further investments in the related trust after 11 August 1999 that are not in line with a contract entered into before that date will be treated as in-house assets unless specifically excluded by sections 71D or 71E of the SISA.

In this case, the fund had an investment as at 11 August 1999. The exception under section 71A of the SISA applies to this investment, meaning it is not an in-house asset.

The fund was then issued with further units after 11 August 1999.

The additional units were not acquired through a reinvestment of the trust distribution but rather, through an additional investment in the related trust.

Neither of the exceptions under section 71A or 71D of the SISA applies.

The investment by the related trust was not geared as at 11 August 1999 and there is no evidence of an election to apply section 71E of the SISA to the investment in the related trust. Therefore, the section 71E exception also does not apply.

The additional investment in the related trust after 11 August 1999 is therefore an in-house asset under the rules contained in section 71 of the SISA.

Date of decision:  24 October 2001

Year of income:  Year ended 30 June 2001

Legislative References:
Superannuation Industry (Supervision) Act 1993
   subsection 71(1)
   paragraph 71A(1)(a)
   section 71D
   section 71E

Related ATO Interpretative Decisions
ATO ID 2002/320

Keywords
Complying superannuation funds
Superannuation fund in house assets
Self managed superannuation funds
SMSF loans
SMSF related parties

Business Line:  Superannuation

Date of publication:  31 May 2002

ISSN: 1445-2782

history
  Date: Version:
You are here 24 October 2001 Original statement
  11 August 2006 Withdrawn