Trustees of a self-managed super fund have a big responsibility to ensure the fund is meeting all compliance requirements and legal obligations. There are lots of laws around super so it is important that trustees understand these before making investment decisions. A common area that the ATO investigates are breaches of the in-house asset provisions. Let’s go through what they actually are.
An in-house asset is an investment in, or a loan to a related party including a related trust as well as the leasing of an asset to a related party. A fund can have up to 5% of the total fund value invested in these types of assets. So who or what is classified as a related party?
Related parties are:
- All members of the fund
- Relatives of each fund member
- Business partners of each fund member
- Any spouse or child of those business partners
- Any trust or private company the member or their associates control
- Employers that contribute to the super fund on behalf of a member
- Associates of your employer that contributes to the super fund of behalf of a member
So as you can see, lots of people and entities can fall into the category of a related party. Let’s go through an example:
Juan is a director of a private company that offers commercial landscaping to inner city office complexes. His brother is also a director. There is one other director who is not related to Juan or his brother. They all have one third ownership in the company each. The company is expanding and will commence capital raising in the coming months. Juan has decided his SMSF will purchase $200,000 worth of shares. Will this investment be an in-house asset?
The above is classified as an in-house asset. This is because Juan and his brother control the private company by having more than 50% ownership interest. If the value of the SMSF is less than $4,000,000 then Juan has breached the in-house asset provisions as he has exceeded 5% of the fund’s net assets.
Rod and Tina have a family trust that they operate their café from. Lately, cash flow has been a bit down but they know it will pick up over summer so decide to lend the family trust $25,000 from their SMSF to pay off a few bills. They intend to pay this back very soon with interest at market rates. Is this loan an in-house asset?
The above is classified as an in-house asset. If the value of the SMSF is less than $500,000 then they have breached the in-house asset provisions as they have exceeded 5% of the fund’s net assets.
It is very important to contact your advisor or accountant before making any decisions regarding your super fund. Punitive penalties can be imposed if you don’t do the right thing. Contact Your Super Specialist now to discuss your obligations and responsibilities.
|This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.|