ATO Interpretative Decision

ATO ID 2002/435 (Withdrawn)

Superannuation

• This ATO ID is withdrawn because it contains a view in respect of a provision of the Superannuation Industry (Supervision) Act 1993 that does not apply after the 2012-13 income year.
  Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to, and including, the 2012-13 income year.
  See ATO ID 2014/7 Keeping Money and Other Assets of a Self Managed Superannuation Fund from Assets of Other Parties, which reflects substantially the same view in respect of the replacement provisions, for decisions for income years after the 2012-13 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Has a contravention of paragraph 52(2)(d) of the Superannuation Industry (Supervision) Act 1993 (SISA) occurred where an asset purchased by a Self Managed Superannuation Fund (SMSF) was not registered in the name of the trustees for and on behalf of the fund?

Decision

Yes, a contravention of paragraph 52(2)(d) of the SISA has occurred as an asset of a SMSF was not held in the name of the fund where registering the property in the name of the fund was possible.

Facts

Two real estate lots (Lot 1 and Lot 2) were purchased by the members of the SMSF in 1998. The members intended purchasing Lot 1 in their capacity as trustees for the SMSF, and to acquire Lot 2 on behalf of their family trust.

After the sale of Lot 2 in 1999, the sale proceeds were incorrectly paid to the SMSF.

It was later established, by the SMSF's accountant, that both property titles were registered in the names of the individual members as joint tenants, not in their capacity as trustees of a SMSF or by the corporate trustee of the family trust.

Reasons for Decision

Section 52 of the SISA lists covenants taken to be included in the governing rules of a superannuation fund. Paragraph 52(2)(d) of the SISA requires the trustees to:

'keep the money and other assets of the entity separate from any money and assets, respectively:

(i)

that are held by the trustee personally; or

(ii)

that are money or assets, as the case may be, of a standard employer-sponsor, of the entity;'

Where it is possible to record the ownership of real property in such a way as to indicate that property is held on trust for an SMSF, clearly registering the interest of the fund in the real property is to be preferred. The capacity to do so will vary according to which State or Territory the property is located in. Inquiry at the relevant Titles Office is essential.

Where the trustees of an SMSF choose to register real property in their own names without noting the interest of the SMSF (where this is possible), there is a risk that the property of the fund might be mistaken as the property of the trustees in their personal capacity. This can present difficulties in preparing and auditing an SMSF's accounts. Further it may increase the likelihood of the trustees being found to have breached one or more of the covenants set out in subsection 52(2) of the SISA. These are covenants taken to be included in the SMSF's governing rules.

The trustees of the SMSF have not recorded the ownership of the real property assets of the SMSF in such a way as to distinguish and keep separate the assets of the SMSF from other assets of the trustees held in their personal capacity. Documentation relating to the purchase of Lot 1 reflects that the trustees personally were the legal owners. This constitutes a breach of paragraph 52(2)(d) of the SISA.

Legislative References:
Superannuation Industry (Supervision) Act 1993
   section 52
   paragraph 52(2)(b)
   paragraph 52(2)(d)

Keywords
Self managed superannuation funds
SIS covenants
SMSF investments

Business Line:  Superannuation

Date of publication:  17 April 2002

ISSN: 1445-2782