ATO Interpretative Decision
ATO ID 2002/352 (Withdrawn)
Superannuation
Retirement income entities: Margin Lending - borrowing by a Self Managed Superannuation FundFOI status: may be released
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This ATO ID has been replaced by ATO ID 2007/58This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 section 67 of the Superannuation Industry (Supervision) Act 1993 (SISA) occurred when a Self Managed Superannuation Fund (SMSF) participates as a borrower in margin lending?
Decision
Yes, a contravention of section 67 of the SISA has occurred when the SMSF participated in margin lending as the borrowing is not for one of the permitted purposes set out in section 67 of the SISA.
Facts
The SMSF operated a 'margin balance' with a broker's clearing house.
The SMSF borrowed money to purchase shares
The SMSF gave the shares to the broker as security for repayment of the loan
The margin balance continued over a long period of time at different monetary levels depending on the value of shares on hand.
Reasons for Decision
Under section 67 of the SISA, an SMSF is prohibited from borrowing money except in limited circumstances.
Subsection 67(2) and subsection 67(2A) of the SISA allow borrowing for a maximum of 90 days to make benefit payments owing to beneficiaries or to pay a surcharge liability subject to the condition that the amount borrowed must not exceed 10% of the superannuation fund's total assets.
Trustees can also borrow, under subsection 67(3) of the SISA, for a maximum of 7 days to cover the settlement of security transactions if the borrowing does not exceed 10% of the superannuation fund's total assets and , at the time the investment decision was made, it was not likely that the borrowing would be necessary.
The SMSF entered into the arrangement with the intention of facilitating the purchase of shares. The period of time that the SMSF maintained the borrowing was greater than 7 days and the nature of the borrowing did not otherwise satisfy any of the exceptions provided for in section 67 of the SISA. The borrowing is therefore a prohibited borrowing under section 67 of the SISA.
Consequences of Contravention of subsection 67(1) of the SISA
The trustee will have breached subsection 67(1) of the SISA by virtue of entering the margin lending facility. Subsection 67(1) is a civil penalty provision. Civil and criminal consequences apply in respect of a trustee's contravention of the subsection.
Date of decision: 4 June 2001
Legislative References:
Superannuation Industry (Supervision) Act 1993
Section 67
Subsection 67(1)
Subsection 67(2A)
Subsection 67(3)
Keywords
Self managed superannuation funds
SMSF borrowings
SMSF audit of funds
SMSF investments
SMSF breach of compliance
ISSN: 1445-2782
| Date: | Version: | |
| 4 June 2001 | Original statement | |
| You are here | 24 August 2007 | Archived |