ATO Interpretative Decision
ATO ID 2002/998 (Withdrawn)
Income Tax
Retirement income entities - In-house Assets / Re-investment in a related unit trustFOI status: may be released
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This ATO ID is withdrawn because it contains a view in respect of a provision of the Superannuation Industry (Supervision) Act 1993 that does not apply after the 2008-2009 income year.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 2008-2009 income year.This 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where two or more self managed superannuation funds have a pre 11 August 1999 investment in the same related unit trust, can each fund individually invest up to the level of debt held by the related unit trust as at 11 August 1999?
Decision
Yes, each superannuation fund can individually invest up to the level of debt held by the related unit trust as at 11 August 1999.
Facts
A self managed superannuation fund (SMSF) had invested in a related unit trust prior to 11 August 1999.
The SMSF was one of seven unit holders in the related unit trust. One of the other unit holders was also an SMSF.
The SMSF has made a written election that it is to make further investments after 11 August 1999 into the related unit trust under the provisions of section 71E of the Superannuation Industry (Supervision) Act 1993 (SISA).
Reasons for Decision
Subsection 71(1) of the SISA provides that an in-house asset of a superannuation fund includes investments in a related trust.
Section 71A of the SISA exempts such an asset from being an in-house asset if it was acquired before 11 August 1999. An investment is also exempted if it was acquired after 11 August 1999, under a contract entered into before that date. In both circumstances the investment must not have been an in-house asset under the former rules.
Further investments in the related trust after 11 August 1999 that are not in line with a contract entered into before that date will be treated as in-house assets unless specifically excluded by one of the transitional rules contained in the SISA. The transitional rules allow for additional investments in existing related party assets in certain limited circumstances.
Section 71E of the SISA, allows for a superannuation fund with fewer than 5 members, that had invested in a related company or trust prior to 11 August 1999, to make additional investments into the related company or trust up to the level of debt (to entities other than the superannuation fund) held by the related company or trust as at 11 August 1999.
If a small superannuation fund has made an election under paragraph 71E(1)(e) of the SISA in relation to an investment held at 11 August 1999 in a related company or trust, that superannuation fund can make further investments up to 30 June 2009 in the related company or trust up to the level of debt held by the related company or trust as at 11 August 1999. However circumstances may exist whereby two or more small funds have a pre 11 August 1999 investment in the same related company or trust.
Can each fund invest up to the level of debt held by the related company or trust, or is the level of debt apportioned between each share holder or unit holder based upon each investors' percentage of holdings?
The amending legislation that introduced section 71E of the SISA and the explanatory memorandum behind the amending legislation both refer to a superannuation fund in the singular. It was not envisaged that two or more superannuation funds may both have an investment in the same related company or trust. The legislation, as enacted, relates to an individual fund with a pre 11 August 1999 investment in a related company or trust, and the ability of that individual fund to make additional investments in the related company or trust, irrespective of whether other small superannuation funds may have an investment in the same related company or trust.
Accordingly, in a circumstance where two or more small superannuation funds have a pre 11 August 1999 investment in a related company or trust and each or all of the small superannuation funds have elected that section 71E of the SISA is to apply, then each or all of the small superannuation funds can individually invest up to the level of debt held by the related company or trust that existed as of 11 August 1999.
Date of decision: 5 July 2002
Legislative References:
Superannuation Industry (Supervision) Act 1993
section 71A
section 71E
subsection 71(1)
paragraph 71E(1)(e)
Keywords
Complying superannuation funds
Superannuation fund in house assets
Self managed superannuation funds
SMSF borrowings
SMSF charge over assets
SMSF related parties
ISSN: 1445-2782
| Date: | Version: | |
| 5 July 2002 | Original statement | |
| You are here | 11 April 2014 | Archived |