Unit trust operation key factor

unit trust, SMSF

The workings of a unit trust rather than its ownership structure is the critical factor in determining whether it is a related-party unit trust.

The establishment of a unit trust shared equally across different SMSFs for investment purposes may not be sufficient to safeguard the vehicle from being classified as a related trust to one of the super funds involved, a sector technical specialist has said.

To illustrate this point, Accurium head of education Mark Ellem made reference to the example contained in the ATO’s Super Scheme Smart: Individuals information pack where three SMSF trustees, Eddy, Paul and Michael, set up a unit trust, the EMP Trust, with their individual funds owning 100 units worth $1 each for the purpose of investing in a property development project.

In the scenario, one of the trustees, Paul, is the owner of a successful property development company while the other two trustees have limited to no knowledge about these types of activities. As such, it can be concluded Eddy and Michael are totally reliant on Paul’s advice regarding the operation of the property development, but this fact is what could cause a compliance issue to arise, Ellem suggested.

“Prima facie the EMP Trust is not a related trust of any of the SMSFs because [the ownership is made up of] a third, a third, a third. As long as the three of them are directors of the corporate trustee and all are contributing equally to the strategic decisions, then it won’t be a related trust,” he noted during the latest Accurium TechHub webinar last week.

“But that is one thing I would question. Remember Eddy and Michael are relying on Paul. Paul’s had the successful property development company, he knows what he is doing, he’s invited them in. So what are the chances that, as directors of the corporate trustee of EMP, Michael and Eddy just follow what Paul does? They’re just yes people,” he said.

“If that can be established by evidence, that that’s what’s happening, then Paul has a problem because Paul would be deemed to control the EMP Trust.

“The EMP Trust would then be a related trust of his superannuation fund. It wouldn’t be a related trust of Eddy or Michael’s super fund because they don’t control it, but it would be an issue for Paul.”

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