ATO Interpretative Decision
ATO ID 2002/597
Superannuation
Retirement Income Entities: In House Assets - loan to related party by trustee of self managed superannuation fundFOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Has a contravention of Part 8 of the Superannuation Industry (Supervision) Act 1993 (SISA) occurred where a trustee of a self managed superannuation fund (SMSF) had made a loan to a related party?
Decision
Yes. A contravention of Part 8 of SISA has occurred as the trustee of the SMSF has loaned money to a related party.
Facts
The SMSF has two members/trustees who are also the beneficiaries of a family trust. One of the members is the director of corporate trustee of the family trust.
The SMSF loaned money to the corporate trustee of the family trust to purchase a business which is operated through the family trust.
Reasons for Decision
Definition of an in-house asset under subsection 71(1) of the SISA states:
'an in-house asset is an asset of the fund that is a loan to, or an investment in, a related party of the fund...',
Under subsection 10(1) of the SISA, a related party is defined as:
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- a member of the fund;
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- a standard employer-sponsor (SES) of the fund;
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- a Part 8 associate of a member or SES.
The family trust is not a member of the fund and there is no mention of a contribution agreement between the family trust and the fund mentioned in the fund's trust deed so it cannot be conclusively proven that the family trust is a SES. The consideration is therefore whether the family trust is a Part 8 associate of a member of the fund.
Under subsection 70B(e) of the SISA, a trustee of a trust is a Part 8 associate of a member, if the individual 'controls' the trust. Here, one member is the sole director of the corporate trustee and therefore 'controls' the trust, so a Part 8 associate exists.
An in-house asset therefore exists and its market value is in excess of the prescribed limit (of 5% of the market value of total assets of the fund) under subsection 81(2) of SISA. The SMSF has contravened Part 8 of the SISA.
Date of decision: 24 October 2001Year of income: Year ended 30 June 2000 Year ended 30 June 1999
Legislative References:
Income Tax Assessment Act 1936
Subsection 26AAB(14)
Subsection 16(2)
Section 62
Section 71
Subsection 81(2)
Subsection 10(1)
Keywords
Complying superannuation funds
Superannuation fund in house assets
Self managed superannuation funds
SMSF investments
SMSF loans
SMSF related parties
SMSF audit report on compliance
SMSF part 8 associate
ISSN: 1445-2782
| Date: | Version: | |
| You are here → | 24 October 2001 | Original statement |
| 3 November 2006 | Archived |