SMSFs involved in detailed related-party transactions should consider if those arrangements are worth the effort and the additional scrutiny the ATO will apply in regards to the sole purpose test, given it has flagged a number of areas of concern.
Cooper Partners Financial Services director Jemma Sanderson said transactions between an SMSF and a related party did not mean a breach of the sole purpose test had occurred, but the regulator was more likely to look at them in regards to the test.
“The ATO doesn’t like some particular investments that an SMSF might undertake, but just because they don’t like it, doesn’t mean that you can’t do it,” Sanderson said during a recent webinar hosted by The Auditors Institute.
“From that we do get asked questions as to what trustees can do in their fund and often the answer is it depends.
“If you can, to the point where the super legislation allows it and the arrangement works, you may be fine on those fronts, but additional compliance requirements to tick all the boxes might make it not worthwhile with the additional scrutiny that will be put in place.
“It might just be the family group looking to undertake a property development, but sometimes it may involve a wider group of parties with a few funds involved where you need to drill down into that, and the moment a super fund is involved as an investor in these arrangements, everything has got to be super schmick.”
She noted operating a business in an SMSF was also an ATO area of focus in regards to the sole purpose test due to the complex nature of these arrangements and the potential to breach other superannuation laws.
“The ATO doesn’t really like it when an SMSF might be operating a business, but there’s no prohibition that says a fund can’t operate a business,” she added.
“They don’t like it because they are looking at whether the business is paying employees, which may also mean paying a related party for that employment, and is some of that a current-day benefit or is it not.
“If the fund is invested heavily in an active business, is there a current-day benefit provided to a related party because they’re working for that business, and if not, is any payment at or above the market rate for what they’re doing.
“For all that nitty-gritty stuff you really need to be providing some more guidance or information for the ATO.”
