A technical specialist has emphasised the need to look beyond the in-house asset rules when an SMSF is looking to make a loan to a business to avoid any possible compliance breaches.
Accurium head of education Mark Ellem noted this should be one of the lessons advisers take away from the case of Goulopoulos and Commissioner of Taxation heard by the Administrative Appeals Tribunal (AAT) recently.
During the case, the appellant claimed he relied on advice from his accountant that “5 per cent of super is considered junk” when inquiring about withdrawing money from his SMSF, in a reference to the in-house asset rules. He subsequently made the drawdown and even though the AAT dismissed this evidence, Ellem stipulated the situation required consideration beyond the in-house asset rules.
He used the example of having a client inquire about a loan from their SMSF to their business to illustrate his point.
“So the client calls you or talks to one of your staff members, and says ‘hi there, I’m just checking that my SMSF can lend up to 5 per cent of the value of assets to my business’. [Ignoring the sole purpose test and investment strategy issues], we need to ascertain how the business is structured,” he noted.
“What is it? A company, trust or partnership? If it’s a sole trader or partnership, then effectively it’s a loan to an individual – a loan to a member. We’ve got ATO ID (Interpretative Decision) 2003/11 [saying] a loan by an SMSF to a partnership is a loan to members. So the 5 per cent rule doesn’t exist for a breach of [Superannuation Industry (Supervision) (SIS) Act] section 65.”
He concluded advisers need to further investigate the details of the situation when clients call up asking these types of questions and to ensure they keep detailed notes of the advice they end up providing.
“[For example, notes confirming] ‘we advised you on the phone that yes [the] 5 per cent [limit] applies, but your business is structured [as a] partnership therefore section 65 [of the SIS Act] will apply, [thus] there is no 5 per cent leniency’,” he advised.