Compliance, Documentation

Related-party purchases misread

related party in-house asset

Many SMSF trustees may be exposing their fund to compliance issues through misunderstanding the related-party acquisition rules.

A technical expert has revealed many SMSF trustees do not understand the rules governing asset acquisitions from a related party and are confusing them with the application of the in-house asset rules.

Heffron SMSF technical and education services director Leigh Mansell said the area of confusion stems from the ability to purchase certain assets from an entity controlled by a related party as opposed to executing a similar transaction from an entity not controlled by a related party.

“If the members of the related party control an entity, it’s okay for a self-managed fund to acquire shares or units in that entity from a related party [if it is subject to an exception] and there is an exception for in-house assets and there is an exception for [Superannuation Industry (Supervision) regulation] 13.22 shares or units,” Mansell noted.

“So it’s doable, but we’re going to have a limit if we have an in-house asset.

“If [the selling entity] is not controlled [by the related party], it’s potentially problematic.”

She pointed out an SMSF cannot acquire an asset from an entity where a related party is involved if the related party does not control that entity.

According to Mansell, many trustees are falling into the trap of thinking a purchase can still take place in these circumstances where the related party has no control over the entity selling the asset by treating it as an in-house asset and ensuring it represents less than 5 per cent of the total holdings of the fund.

“[The transaction itself] is not [okay and] that there is a common misconception,” she noted.

“So it’s really critical when you’re analysing [these situations to] work out what the asset is, work out who you’re acquiring it from and then [determine if you are] acquiring it from a related party [and whether] one of those exceptions [applies] yes or no.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital