• Video transcript – In-house assets

    Selecting investments for your SMSF can be tricky.

    There are lots of investment rules you must follow.

    Let’s have a look at the in-house asset rule.

    An in-house asset is basically an investment in a related party of your fund, which includes fund members, trustees, their relatives and related entities.

    Some examples of in-house assets include:

    • a house owned by the fund which is leased to a member’s son
    • an investment in a company controlled by a member
    • a loan to a partnership where the members are the partners.

    Some assets, such as business property are not classified as in-house assets.

    What is the in-house asset rule?

    A fund can have in-house assets but they can’t be more than 5% of the total market value of fund assets.

    Certain events will affect the percentage of in-house assets held.

    So you need to be careful.

    Bob and Greg have an SMSF.

    Their fund owns machinery which is leased to Greg’s business.

    Because the business is a related party of the SMSF the machinery is an in-house asset.

    The machinery started as 4% of total fund assets.

    But then, Bob retired and took a lump sum payment.

    Now the in-house asset is more than 5 per cent.

    The auditor reports the contravention and tells Greg he needs a written plan to dispose of the in house asset.

    Greg doesn’t bother because his business needs the machinery.

    So the ATO directs Greg to dispose of the in-house asset – this means Greg has to scale down his business operations.

    Bob and Greg as trustees are also fined thousands of dollars – which they have to pay out of their own pockets.

    You need to continually monitor the value of in-house assets so you never break the rules.

    Many trustees just prefer to avoid in-house assets altogether!

    If you want your SMSF to invest with someone you know, talk to an SMSF professional before making the investment.

    For more SMSF information take a look at our other videos – or visit the ATO website at ato.gov.au

      Last modified: 12 Nov 2015QC 39855