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ATO Interpretative Decision

ATO ID 2001/234

Superannuation

Retirement income entities - loan to a property 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.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Will the loan from a Self Managed Superannuation Fund (SMSF) to a Property Trust be treated as an in-house asset?

Decision

The loan from a SMSF to a Property Trust will not be treated as an in-house asset.

Facts

A SMSF made a loan to a Property Trust.

An associate of the SMSF (a Unit Trust) holds less than 10% of the issued units in the Property Trust.

The Unit Trust has as members of the class of general beneficiaries, members of the SMSF.

The loan was made under a commercial loan agreement.

Reasons for Decision

The provisions of the Superannuation Industry (Supervision) Act 1993 (SISA) do not prescribe what investments are appropriate for a superannuation fund. However, it does contain some provisions that have the effect of restricting investment choice.

Subsection 65(1) of the SISA states that the trustee or an investment manager of a regulated superannuation fund must not lend money of the fund to a member or a relative of a member of the fund. A 'relative' as defined in subsection 65(6) of the SISA, includes only natural persons. As the Property Trust is not a natural person, subsection 65(1) of the SISA does not prohibit the SMSF from making the loan.

The meaning of an in-house asset is defined by section 71 of the SISA to be 'a loan to, ... a related party of the fund, ...' A related party of the superannuation fund, as defined in subsection 10(1) of the SISA, is a member of the fund, a standard employer sponsor of the fund, or a Part 8 associate of an entity. The Property Trust is neither a member of the SMSF or a standard employer sponsor of the fund. However, the Property Trust may be a Part 8 associate of the members of the SMSF.

The relationships between the parties involved requires analysis. In particular, it needs to be determined if the trustees of the Property Trust or any of the other unit holders of the Property Trust are Part 8 associates of the trustees of the SMSF. Part 8 associates of the members of the SMSF are listed in section 70B of the SISA. The relevant Part 8 associates will be any relatives, other fund members and trustees of trusts that are controlled by the individual members of the SMSF.

According to section 70E of the SISA, a trust is controlled by an entity, for the purposes of section 70B of the SISA if:

(i)
a group in relation to the entity has a fixed entitlement to more than 50% of the capital or income of the trust; or
(ii)
the trustee of the trust or a majority of the trustees of the trust is accustomed or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the entity; or
(iii)
a group in relation to the entity is able to remove or appoint the trustee or a majority of the trustees of the trust.
A group is defined in subsection 70E(3) of the SISA to mean:
(iv)
the entity or a Part 8 associate of the entity acting alone; or
(v)
the entity and one or more Part 8 associates of the entity acting together; or
(vi)
two or more Part 8 associates of the entity acting together.

The Property Trust to whom the loan was made is not a Part 8 associate of the SMSF because the SMSF and its associates hold less than 10% unit holdings in the trust and have no other control over the trust. Accordingly the loan has not been made to a related party and therefore does not meet the definition of an in-house asset. The SMSF would be able to loan the money to the Property Trust provided this investment is in line with the investment strategy of the SMSF.

Date of decision:  24 July 2001

Legislative References:
Superannuation Industry (Supervision) Act 1993
   subsection 10(1)
   subsection 65(1)
   subsection 65(6)
   section 70B
   section 70E
   section 71

Keywords
Self managed superannuation funds
SMSF investments
SMSF investment strategy
SMSF loans
SMSF part 8 associates
SMSF related parties
Complying superannuation funds
Superannuation fund in house assets

Business Line:  Superannuation

Date of publication:  21 August 2001

ISSN: 1445-2782

history
  Date: Version:
You are here 24 July 2001 Original statement
  27 September 2001 Archived

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