Issue
Is an amount of interest outstanding after the repayment of the principal amount by the employer-sponsor of the self managed superannuation fund (SMSF) to the wholly owned unit trust of the SMSF, a loan to the employer-sponsor?
Decision
No. The interest outstanding on the transaction between the unit trust and the employer-sponsor is not a loan from the SMSF to the SMSF's employer-sponsor.
Facts
The unit trust purchased an item of equipment from the employer-sponsor of the SMSF.
The unit trust paid the agreed purchase price.
Ownership of the item of equipment could not be transferred to the unit trust.
The employer-sponsor has repaid the amount of principal owing to the unit trust; however no interest has been paid.
The SMSF owns all of the units in the unit trust which were purchased before 11 August 1999.
The directors of the employer-sponsor are trustees of the SMSF and unit trust.
Reasons for Decision
The transactions occurred between the unit trust and the employer-sponsor of the SMSF. The SMSF's involvement is by virtue of its 100% holding of the units in the unit trust.
The transactions in question occurred between the unit trust and the employer-sponsor prior to 11 August 1999 (when the extended in-house asset provisions of the Superannuation Industry Supervision Act 1993 (SISA) took effect). As the provisions of SISA do not cover the investment activities of the unit trust where the investment occurred prior to test time, the transaction is outside the jurisdiction of SISA. Therefore no contravention of SISA has occurred.