Latest News

Hot Issues
spacer
Tax Time Checklists - Individuals; Company; Trust; Partnership; and Super Funds
spacer
ATO zeroes in on work expenses, crypto investments
spacer
Forget the Tim Tams in your WFH claim, say ‘fun police’
spacer
Inflation will force a third of businesses to raise prices
spacer
State and Federal Disaster support --- June 2022
spacer
Year-end tax planning
spacer
World GDP Ranking (1960~2025)
spacer
100A ruling ‘turns tax avoidance logic on its head’
spacer
Be alert for phoenix activity, businesses told
spacer
Equifax signs data agreement with ATO
spacer
E-invoicing will reduce emissions, says PwC
spacer
Largest cities in the world 1500 to 2100
spacer
Last chance to claim the loss carry-back
spacer
Changes to recovery loan scheme for small and medium enterprises
spacer
About the cash flow forecasting template
spacer
Federal budget 2022: Winners and Losers
spacer
ATO puts 50,000 directors on notice.
spacer
FBT Reminder – Odometer Reading
spacer
Data matching program: government payments
spacer
Budget: Big wins for SMEs
spacer
Small businesses show sign of omicron rebound
spacer
Federal Budget 2022 - Overview
spacer
Federal Budget 2022 and YOU - Part 1
spacer
Federal Budget 2022 and YOU - Part 2
spacer
Budget at a Glance - Video
Article archive
spacer
Quarter 1 January - March 2022
spacer
Quarter 4 October - December 2021
spacer
Quarter 3 July - September 2021
spacer
Quarter 2 April - June 2021
spacer
Quarter 1 January - March 2021
spacer
Quarter 4 October - December 2020
spacer
Quarter 3 July - September 2020
spacer
Quarter 2 April - June 2020
spacer
Quarter 1 January - March 2020
spacer
Quarter 4 October - December 2019
spacer
Quarter 3 July - September 2019
spacer
Quarter 2 April - June 2019
spacer
Quarter 1 January - March 2019
spacer
Quarter 4 October - December 2018
spacer
Quarter 3 July - September 2018
spacer
Quarter 2 April - June 2018
spacer
Quarter 1 January - March 2018
spacer
Quarter 4 October - December 2017
spacer
Quarter 3 July - September 2017
spacer
Quarter 2 April - June 2017
spacer
Quarter 1 January - March 2017
spacer
Quarter 4 October - December 2016
spacer
Quarter 3 July - September 2016
spacer
Quarter 2 April - June 2016
spacer
Quarter 1 January - March 2016
spacer
Quarter 4 October - December 2015
spacer
Quarter 3 July - September 2015
spacer
Quarter 2 April - June 2015
spacer
Quarter 1 January - March 2015
spacer
Quarter 4 October - December 2014
Quarter 2 of, 2015 archive
spacer
SMSFs may be missing out on allowable deductions
spacer
Change to Early Access Rules
spacer
Capital Gains Tax – which year?
spacer
Checklist for Employers Year-end
spacer
Year-end Tax Planning – Small Business
spacer
Year-end Tax Planning – Trusts
spacer
Reminders and Tax Strategies for SMSFs pre-year end
spacer
Year-end Tax Planning – Individuals
spacer
Overtime Payments May Eliminate Claims for Unfair Dismissal
spacer
Tips and traps for acquiring SMSF assets from related parties
spacer
ACCC issues scam warning
spacer
SME Dispute Resolution
spacer
Land Tax – Victoria
spacer
R&D incentives at risk
spacer
ATO adds ‘hot issue’ to its SMSF target list
spacer
Additional Super Contributions Not Appropriate for all
spacer
Issues arising from an underpaid pension
spacer
Salary and Superannuation after the death of an employee
spacer
IPA calls for zero pc tax rate
spacer
Australian Government - Budget 2015
spacer
Budget 2015 - some professional opinions
spacer
Looming end to SMSF Borrowings?
spacer
ATO warns SMSFs on franking credits scheme
spacer
Lump Sum Payments - Employer Reporting
spacer
Small business tax cuts 'not enough', says IPA
Tips and traps for acquiring SMSF assets from related parties

 

Acquiring assets from related parties can be a minefield, but some SMSF practitioners continue to struggle with the basics.

             

In certain scenarios (e.g. when an SMSF winds up and its assets end up in different SMSFs), it’s not always clear whether a fund is acquiring assets from a related party.

Unfortunately, transferring the assets from the fund being wound up into the new one without taking the SMSF rules into account could be disastrous. You may inadvertently be breaching Section 66 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which deals with acquiring assets from a related party.

It’s important that all dealings between related parties are done at arm’s length, and in conjunction with the fund’s investment strategy.

A related party of an SMSF can be:

  • all members of your fund
  • associates of fund members, including:
  • the relatives of each member
  • the business partners of each member
  • any spouse or child of those business partners; any company a member (or the members or their associates) controls or influences; and any trust the member (or the members or their associates) controls
  • standard employer sponsors (i.e. employers who contribute to an SMSF) under an arrangement between the employer and a trustee of your fund
  • associates of standard employer sponsors, including:
  • business partners and companies or trusts the employer controls (either alone or with their other associates)
  • companies and trusts that control the employer.

A relative of a member can be:

  • a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse
  • a spouse of any individual specified above

(Interestingly, a cousin isn’t classified as a related party.)

Remember, the only assets a fund can intentionally acquire from a related party (such as a former SMSF) are:

  • money or cash
  • listed shares
  • business real property.

All acquisitions must be done at market value. So items such as business real property should be valued at least three months before the acquisition, just to be safe.

To make things even less cut and dried, various exceptions can be applied.

The 5 per cent IHA Rule

Any non-permitted asset (e.g. shares in a company that’s a related party) can be acquired as long as it doesn’t make the SMSF exceed the 5 per cent permitted level of in-house assets. (These shares are acquired when the trustee of the new SMSF becomes the owner of the shares.)

Providing the acquisition is done at market value, the exception applies to all assets, including units in related unit trusts and superannuation funds.

If the asset is acquired at less than market value, the difference between the two values should be recorded as a contribution.

Relationship breakdown

If there’s a relationship breakdown, an SMSF’s assets can be transferred to/acquired by another SMSF without breaching S66.

However, to get the green light, rules within the Family Law Act 1975 must be applied. For example, you’d need a divorce order for a marriage breakdown, and evidence of property settlement proceedings for a de facto relationship breakdown.

Last asset standing

Under S66(2C) of the SIS Act, a fund can acquire an asset from a related party if it’s acquired under a merger between super funds. Under these limited circumstances, there may be scope to transfer a non-permitted asset to another fund that’s winding up via a rollover.

Here’s an example: If the last asset standing in the wind-up fund isn’t permitted, but the fund can only be closed by transferring it to the new fund, then it may be seen as a merger between the two funds.

Important note: This rule isn’t a 'Get out of jail free' card to get past the legislation. Get it wrong, and you could be facing fines and other penalties from the ATO. So be careful, and make sure you document everything before you head down this path.

As you can see, acquiring assets from related parties can be a bit of minefield. And you need to tread carefully to make sure you don’t breach any SIS rules.

Shelley Banton, director, SuperAuditors

Wednesday 20 May 2015
Columnist: Shelley Banton
​www.smsfadviseronline.com.au

Liability limited by a Scheme approved under Professional Standards Legislation.
© O'Brien and Partners 2022 - All Rights Reserved | 91 Station Street, Malvern VIC 3144 | Tel: 03 9509 3911 | Fax: 03 9509 3922. Site by Acctweb