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Related party transactions flexibility exists

Rules governing the acquisition of assets from related parties are strict but there is a little flexibility stemming from various exceptions, according to an SMSF specialist auditor.

SuperAuditors director Shelley Banton says this includes rules covering the circumstances of a relationship breakdown and those covering the shutting down of another super fund.

In relationship breakdowns, assets can be transferred or acquired by an SMSF from a related party as part of the division of assets between the parties without breaching section 66 of the Superannuation Industry (Supervision) (SIS) Act, Banton said.

“However, to get the green light rules under the Family Law Act 1975 must be applied,” she warned.

“For example, you’d need a divorce order for a marriage breakdown, and evidence of property settlement proceedings for a de facto relationship breakdown.”

An SMSF can also acquire related party assets without contravening the SIS Act if the transaction is part of the winding-up of a super fund or the merger between two funds.

Banton said in these situations the acquisition had to be of the final asset in the fund, and the final outcome of wind-up or merger had to be dependent on the acquisition of that asset.

“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,” she explained.

Advisers and trustees needed to be aware of these distinctions when seeking to apply this exception, Banton said.

“This rule isn’t a ‘get out of jail free’ card to get past the legislation,” she cautioned.

“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.”

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