Issue
Does an arrangement whereby a Self Managed Superannuation Fund (SMSF) allows its assets to be used by a related party at a cost which is less than the market value payable for the use of the asset breach the requirements of section 109 of the Superannuation Industry (Supervision) Act 1993 (SISA)?
Decision
Yes, an arrangement whereby an SMSF allows its assets to be used by a related party at a cost which is less than the market value payable for the use of the asset breaches the requirements of section 109 of the SISA.
Facts
An SMSF invests in works of art.
Some of the works of art are displayed in the residence of the members of the fund.
The members of the SMSF do not pay for this use of the fund's asset.
Reasons for Decision
Subsection 109(1A) of the SISA states as follows: 'If: (a) the trustee or investment manager of a superannuation entity invests in that capacity; and (b) at any time during the term of that investment the trustee or investment manager is required to deal in respect of the investment with another party that is not at arm's length with the trustee or investment manager; the trustee or investment manager must deal with the other party in the same manner as if the other party were at arm's length with the trustee or investment manager'.
This means that where a superannuation fund's asset is used by a related party of the fund the arrangement between the parties should reflect the type of arrangement that would be in place had the fund's asset been used by a party that was not related to the fund. A feature that would be expected would be payment for the use of the asset at the same level that would be expected if the parties had been dealing at arm's length.