Self-managed Super Funds and Related Party Acquisitions

hand working out calculations

Monies held in Self-managed Super Funds (SMSFs) form the largest sector in the superannuation area in Australia, with assets now totalling around $600 billion.

In the five years to 2016, the number of SMSFs grew from 440,000 to 577,000.  With so many new funds being created, the ATO and ASIC have – in recent years – stepped up their surveillance of SMSF trustees.  There are significant penalties which may be imposed when trustees don’t follow the rules.

One of the important areas for SMSFs are restrictions on related-party transactions.

Exceptions to the rule: acquiring assets from related parties

Generally speaking, super funds can’t acquire assets from related parties.   Straying outside this rule will breach s 66(1) of the Superannuation Industry (Supervision) Act 1993.

However, there are some minimal exceptions, which are:

  • Money, or
  • The acquisition is at market value, and is one of the following:
    • A listed security (such as shares listed on a stock exchange)
    • Business real property
    • An in-house asset – provided the market value of your fund’s in-house assets does not exceed 5% of the total market value of your fund’s assets.
    • An asset specifically excluded from being an in-house asset.

In-house assets include things like loans to related parties, or investments in related funds.  Importantly, leasing or renting an asset of a super fund to a related party constitutes an in-house asset, which means that if the SMSF buys a residential property then it can’t be occupied by a related party.

Related parties

A ‘related party’ of your fund includes:

  • All members of your fund
  • Associates of fund members, which include:
    • The relatives of each member
    • The business partners of each member
    • Any spouse or child of those business partners
    • Any company the member or their associates control or influence
    • Any trust the member or their associates control.
  • Standard employer–sponsors, which are employers who contribute to your super fund for the benefit of a member, under an arrangement between the employer and a trustee of your fund
  • Associates of standard employer–sponsors, which include
    • business partners and companies or trusts the employer controls (either alone or with their other associates)
    • companies and trusts that control the employer.

A relative of a member means any of the following:

  • a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse
  • a spouse of any individual specified above.

The ATO have produced a useful video that helps to explain the rules as well.

Need help?

If you are thinking about having your SMSF acquire an asset from a related party, or you would like to know more about setting up an SMSF, and the rules around such funds, please give us a call to discuss the pros and cons.

 


 

General advice warning

The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.