ATO Interpretative Decision

ATO ID 2002/351 (Withdrawn)

Superannuation

Retirement income entities: Margin Lending - charge over assets of a Self Managed Superannuation Fund
FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 Regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) occurred when a Self Managed Superannuation Fund (SMSF) participates as a borrower in margin lending?

Decision

Yes, a contravention of Regulation 13.14 of the SISR has occurred when the SMSF participated in margin lending as the trustee will have granted a charge over certain assets of the fund as a condition of receiving the funds under the facility.

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 period of time at different monetary levels depending on the value of shares on hand. As the purpose of the borrowing under the margin lending facility lies outside the permitted exceptions in section 67 of the Superannuation Industry (Supervision) Act 1993 (SISA), operating the facility also involves the trustee in a prohibited borrowing under section 67 of the SISA.

Reasons for Decision

Regulation 13.14 of the SISR relates to charges over assets of Funds and prohibits the trustee of a superannuation fund giving a charge over, or in relation to, an asset of the superannuation fund. The participation in margin lending requires that shares be held as security for the purchase of additional shares. This represents a charge over some of the assets of the SMSF and is in contravention of Regulation 13.14 of the SISR.

Consequences of Contravention of Regulation 13.14

The trustee will have breached subsection 31(1) of the SISA by virtue of contravening Regulation 13.14 which is an operating standard applicable to the operation of a regulated superannuation fund (including an SMSF). It is an offence under subsection 34(2) of the SISA for a trustee to intentionally or recklessly contravene an operating standard applicable to an SMSF.

Date of decision:  4 June 2001

Legislative References:
Superannuation Industry (Supervision) Act 1993
   67

Superannuation Industry (Supervision) Regulations 1994
   Regulation 13.14

Keywords
Self managed superannuation funds
SMSF borrowings
SMSF breach of compliance
SMSF charge over assets
SMSF investments

Business Line:  Superannuation

Date of publication:  28 March 2002

ISSN: 1445-2782

history
  Date: Version:
  4 June 2001 Original statement
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