The use of a 13.22C trust inside an SMSF is still a viable option for some trustees, despite them carrying many similar investment restrictions, as they alter the ownership of the underlying assets, a technical specialist has reminded advisers.
BT head of financial literacy and advocacy Bryan Ashenden pointed out 13.22C trusts were allowed inside an SMSF and were not considered in-house assets if they met a number of conditions.
Speaking during an adviser briefing today, Ashenden pointed out those conditions were that a unit trust was not a party to a lease with a related party unless the lease related to business real property and the trust did not have any outstanding borrowings.
Additionally, the assets of the unit trust cannot include an interest in another entity, a loan to another entity, an asset that has a charge over it, an asset that was acquired from a related party of the super fund after 11 August 1999 or an asset that was an asset of a related party during specific times in the past.
“Those rules state that a unit trust cannot own shares or managed funds because if it has either of those, it has an interest in another entity. When you put those aside, it’s pretty much the same requirements as applied to the SMSF itself,” Ashenden said, noting an SMSF could have borrowing under a limited recourse borrowing arrangement.
“If a 13.22C unit trust looks to be at least as restrictive as a direct SMSF investment, how can they add some form of additional value?”
He said an SMSF directly or via a 13.22C unit trust could purchase property, but the latter provided more scope to use the asset.
“If the SMSF was to invest directly into that property, we have to be careful if we need to do something to that property. Is it a repair? Is it an improvement? Does it change the characteristic of the asset or the character of that asset?” he said.
“If we hold the property inside a unit trust, then we can ask: What has the SMSF purchased with the borrowed money? The answer is it’s purchased units in the unit trust and potentially we could do more things to that underlying asset than we could do if it was owned directly via the SMSF with a loan over it.”
