Issue
Is an additional investment in a related trust by a Self Managed Superannuation Fund (SMSF) after 11 August 1999 an in-house asset of the SMSF as defined in subsection 71(1) of the Supervision Industry (Supervision) Act 1993 (SISA)?
Decision
Yes. The additional investment by an SMSF is an 'in-house asset' as defined in subsection 71(1) of SISA.
Facts
The SMSF and related trust were established before 11 August 1999 where the SMSF is the sole beneficiary of the trust. Both trusts have the same corporate trustee.
The related trust purchased and paid a deposit for real property 'off the plan' prior to 11 August 1999.
The SMSF received further units in the related trust after 11 August 1999 after making an additional investment in the related trust.
The related trust intended to sell the property before settlement but was unable to find buyer. It then borrowed money to settle the purchase after subsequent issue of units to the SMSF.
The property is leased at arms length to an unrelated third party.
Reasons for Decision
Subsection 71(1) of SISA provides that an in-house asset of a superannuation fund includes investments in a related trust.
Section 71A of SISA exempts such an investment from being an in-house asset if it was acquired before 11 August 1999. An investment is also exempted if it was acquired after 11 August 1999, but where that acquisition was made under a contract that was entered into before that date. In both circumstances the investment must not have been an in-house asset under the former rules.
In this case, the fund had an investment as at 11 August 1999. The exception under section 71A of SISA applies to this investment, meaning it is not an in-house asset.
The fund made an additional investment in the related trust after 11 August 1999 and was issued with further units. The exception under section 71A of the SISA does not apply to the additional investment.
Further investments in the related trust after 11 August 1999 that are not in line with a contract entered into before that date will be treated as in-house assets unless specifically excluded by sections 71D or 71E of SISA and made before the end of 30 June 2009.
The additional units were not acquired through a reinvestment of trust distributions.
The exception under section 71D of SISA does not apply.
The investment by the related trust was not geared as at 11 August 1999 and there is no evidence of an election to apply section 71E of SISA to the investment in the related trust. Therefore, the section 71E exception also does not apply.
The additional investment in the related trust after 11 August 1999 is therefore an in-house asset under the rules contained in section 71 of SISA.
Amendment History
Date of Amendment Part Comment 15 April 2016 Legislative References Section 71 added Related ATO Interpretative Decisions Reference to a withdrawn ATO ID updated Related ATO Interpretative Decisions Related ATO ID's added Keywords "SMSF loans" removed Siebel/TDMS Reference Number Siebel case ID updated
Date of Amendment | Part | Comment
15 April 2016 | Legislative References | Section 71 added
Related ATO Interpretative Decisions | Reference to a withdrawn ATO ID updated
Related ATO Interpretative Decisions | Related ATO ID's added
Keywords | "SMSF loans" removed
Siebel/TDMS Reference Number | Siebel case ID updated