SMSF trust control determined by positive factors

Positive influencing factors rather than negative ones are the elements advisers and their clients must be cognisant of when determining whether an SMSF has control over a trust in which it is invested and as such potential in-house asset issues, an industry technical expert has said.

“There was an issue some years ago whereby if you had two people or funds that each had an entitlement to 50 per cent of the units in a unit trust did that mean … the individuals or the funds can block decisions, so did that give some sort of negative control over the trust,” SuperConcepts executive manager SMSF technical services Mark Ellem told delegates at the recent Chartered Accountants Australia and New Zealand National SMSF Conference 2017 held in Sydney.

“And if it does well then you have control of the trustee and that trust is now a related trust of the SMSF.

“But that was looked at by the tax office and determined it was not looking at [situations like this] from a negative point of view that if you can block decisions being made, so you end up with a consistent state of disagreement with no decisions being made, that’s not going to count as having control.

“It looks at it from a positive viewpoint – can you actually control the trust?”

Ellem added if it was determined the SMSF had control of the trust in which it was invested the adviser and super fund trustees would then have to see if any exceptions applied to the situation.

“If no exceptions apply we’ve got an in-house asset subject to the 5 per cent rule,” he explained.

According to Ellem the exceptions to consider would be if the trust was a pre-11 August 1999 unit trust, which comes under the grandfathering rules regarding related party trusts, of whether the trust is a non-geared unit trust as stipulated in regulation 13.22C of the Superannuation Industry (Supervision) Regulations.

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