Issue
Has a contravention of Part 8 of the Superannuation Industry (Supervision) Act 1993 (SISA) occurred where a trustee of a self managed superannuation fund (SMSF) had made a loan to a related party?
Decision
Yes. A contravention of Part 8 of SISA has occurred as the trustee of the SMSF has loaned money to a related party.
Facts
The SMSF has two members/trustees who are also the beneficiaries of a family trust. One of the members is the director of corporate trustee of the family trust.
The SMSF loaned money to the corporate trustee of the family trust to purchase a business which is operated through the family trust.
Reasons for Decision
Definition of an in-house asset under subsection 71(1) of the SISA states: 'an in-house asset is an asset of the fund that is a loan to, or an investment in, a related party of the fund...',
Under subsection 10(1) of the SISA, a related party is defined as: - a member of the fund; - a standard employer-sponsor (SES) of the fund; - a Part 8 associate of a member or SES.
The family trust is not a member of the fund and there is no mention of a contribution agreement between the family trust and the fund mentioned in the fund's trust deed so it cannot be conclusively proven that the family trust is a SES. The consideration is therefore whether the family trust is a Part 8 associate of a member of the fund.
Under subsection 70B(e) of the SISA, a trustee of a trust is a Part 8 associate of a member, if the individual 'controls' the trust. Here, one member is the sole director of the corporate trustee and therefore 'controls' the trust, so a Part 8 associate exists.
An in-house asset therefore exists and its market value is in excess of the prescribed limit (of 5% of the market value of total assets of the fund) under subsection 81(2) of SISA. The SMSF has contravened Part 8 of the SISA.