The transfer of property from a related family trust to an SMSF is a potentially complex transaction with many compliance issues, some of which are under ATO scrutiny, according to a financial services law firm.
Townsends Business & Corporate Lawyers said while such transfers were possible, trustees needed to be cautious owing to the “multiple layers of compliance hurdles” involved.
“This is particularly so in the current environment where the ATO is paying close attention to SMSFs heavily invested in property with limited recourse borrowing arrangements,” Townsends Lawyers noted in a blog post on its website.
While the Superannuation Industry (Supervision) (SIS) Act prohibits the acquisition of a property from a related party, the firm pointed out where a family trust transferring the property is related to the SMSF, the acquisition would still comply with superannuation laws as long as it met one of the SIS Act’s limited exceptions, including the acquisition of business real property from a related party, or the acquisition of an in-house asset from a related party.
“Similarly, the related party loan should be formally documented and undertaken on arm’s length terms (that is, with a formal deed of loan, mortgage and actual advance of loan amount between parties),” it added
“We recommend trustees to stay in the safe harbour and follow the ATO’s practical compliance guidelines when determining the loan terms.
“Also, they should seek advice and ensure that the arrangement complies with the limited recourse borrowing provisions of the SIS Act.”
It identified compliance with the SMSF’s current investment strategy as another key consideration for trustees, as well as ensuring the family trust deed allowed for the necessary transactions.
“While not a mandatory legal requirement, it would be prudent to obtain financial advice in relation to your investment strategy and proposed transaction,” it said.
“Before proceeding, [trustees] should also seek advice as to whether their family trust deed and/or applicable trust laws allow them as trustees to enter into the two transactions (that is, sell the trust property and lend trust money) and comply with any applicable conditions, procedures or restrictions.”