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ATO Interpretative Decision

ATO ID 2004/251

Superannuation

Retirement income entities - arms length arrangement.
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.

This ATOID provides you with the following level of protection:

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does an arrangement whereby a Self Managed Superannuation Fund (SMSF) allows its assets to be used by a related party at a cost which is less than the market value payable for the use of the asset breach the requirements of section 109 of the Superannuation Industry (Supervision) Act 1993 (SISA)?

Decision

Yes, an arrangement whereby an SMSF allows its assets to be used by a related party at a cost which is less than the market value payable for the use of the asset breaches the requirements of section 109 of the SISA.

Facts

An SMSF invests in works of art.

Some of the works of art are displayed in the residence of the members of the fund.

The members of the SMSF do not pay for this use of the fund's asset.

Reasons for Decision

Subsection 109(1A) of the SISA states as follows:

'If:

(a)
the trustee or investment manager of a superannuation entity invests in that capacity; and
(b)
at any time during the term of that investment the trustee or investment manager is required to deal in respect of the investment with another party that is not at arm's length with the trustee or investment manager;

the trustee or investment manager must deal with the other party in the same manner as if the other party were at arm's length with the trustee or investment manager'.

This means that where a superannuation fund's asset is used by a related party of the fund the arrangement between the parties should reflect the type of arrangement that would be in place had the fund's asset been used by a party that was not related to the fund. A feature that would be expected would be payment for the use of the asset at the same level that would be expected if the parties had been dealing at arm's length.

Date of decision:  27 October 2003

Year of income:  Year ended 30 June 2003

Legislative References:
Superannuation Industry (Supervision) Act 1993
   section 109

Related ATO Interpretative Decisions
ATO ID 2004/248
ATO ID 2004/249
ATO ID 2004/250

Keywords
Self managed superannuation funds
SMSF investments
Asset valuation

Business Line:  Superannuation

Date of publication:  26 March 2004

ISSN: 1445-2782

history
  Date: Version:
You are here 27 October 2003 Original statement
  21 May 2010 Archived

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