Description
A trustee of an SMSF ('the trustee') pays a fee to an organiser ('the organiser') to set up an agreement, possibly referred to as a 'joint venture agreement' ('the agreement'), between the SMSF and a related trust ("the trust"). 2. The trust may be a hybrid trust of the type described in Taxpayer Alert TA 2008/3 Uncommercial use of certain trusts and Taxpayer Alert TA 2008/4 Self-managed superannuation funds deriving income from certain uncommercial trusts . 3. The organiser claims that the purpose of setting the agreement is to buy investments to provide mutual financial rewards to the SMSF and the trust. 4. Under the agreement, the SMSF contributes capital to fund the acquisition and possible development of an asset ('the asset'), typically real property, which is acquired by the trust. 5. Typically the agreement would state that the SMSF acquires no legal, equitable or other interest in the asset. 6. In exchange for the capital contribution, the agreement provides the SMSF with rights to a proportionate share of the profits from the commercial usage of the asset from the trust. Therefore, the return on the investment, and the investment risk, is dependent on the trust. 7. The trust uses the funds from the SMSF (e.g. 15%) and a borrowed amount (e.g. 85%) to purchase and potentially develop the asset. 8. The borrowed amount the trust puts towards the investment in the asset (e.g. 85%) may come from the following source(s): • the trust borrows an amount from a financial institution; and/or • an individual borrows an amount from a financial institution and subscribes units in the trust. The asset may be used as security for the above borrowing(s). 9. Legal title in the asset lies with the trust and not the SMSF. 10. In some cases, the asset may be leased to a member or members either at market rate or below market rate. 11. The benefits arising from the investment i.e. rents and profits from the sale of the asset are split in proportion to the risk capital invested by the SMSF and the trust based on gross proceeds (e.g. 15% to the SMSF and 85% to the trust). The trust pays all expenses. 12. The SMSF can make further capital contributions to the arrangement via variation/amendment to the agreement to increase its financial risk. 13. The organiser may allege that the arrangement falls outside previous negative Tax Office view (such as ATOID 2006/335) on similar arrangements without any qualification regarding materially different facts. 14. The organiser charges a fee for establishing this arrangement, based upon the perceived commercial advantages of the promoted superannuation regulatory and taxation benefits.