Retirement Income Entities - Trustee request for written notice determining that an asset is not an in-house asset

Will the Commissioner issue a notice under paragraph 71(1)(e) of the Superannuation Industry (Supervision) Act 1993 (SISA) determining that an asset of the self managed superannuation fund (SMSF) is not an in-house asset?

No. The Commissioner will not issue a written determination determining that the asset is not an in-house asset.

The trustees requested the Commissioner to make a written determination under paragraph 71(1)(e) of the SISA, deeming an asset not be an in-house asset, in order to allow for the trustees to acquire the asset without contravening the SISA.

The proposed investment comprised units in a unit trust which owns Business Real Property. The unit trust is not a related party of the fund. As the trust does not meet the definition of a widely held trust under subsection 71(1A) of the SISA, which would allow the fund to acquire the investment, the trustees believed they were being adversely treated under the amendments to the SISA which inserted subsection 71(1A) into the Act.

Section 66 of the SISA prohibits the trustee of a regulated superannuation fund from intentionally acquiring an asset from a related party of the fund. Exceptions to this general prohibition are prescribed under subsections 66(2) and 66(2A) of the SISA. Under subsection 66(2A), an acquisition from a related party is not prohibited if it is an investment which the Regulator, by written notice given to the trustee of the fund under paragraph 71(1)(e) of the SISA, determines is not an in-house asset of the fund that is acquired at market value and the acquisition would not exceed the level of in-house assets under Part 8 of the SISA.

The amendments to the SISA inserted by the Superannuation Legislation Amendment Act No 4 1999 included 'investments in related trusts' under the definition of an in-house asset with the intention of restricting such investments for trustees of superannuation entities. The amendments clearly indicate a change in government policy in relation to investments by SMSFs in unit trusts other than widely held unit trusts. The nature of the investment in question is not unusual or unique. There are a multitude of similar investments held by trustees of other SMSFs.

The Commissioner is of the opinion that to issue a notice determining that the investment in question is not an in-house asset would lead to an inequitable situation. Therefore the Commissioner decided not to issue a notice pursuant to paragraph 71(1)(e) of the SISA.