SMSFs that breach rules regarding the acquisition of assets from a related party will not be able to void the transaction by moving the asset out of the fund with the breach being non-reversible and open to ATO penalties, according to a specialist SMSF practitioner.
Cooper Partners Financial Services director Jemma Sanderson acknowledged the acquisition of assets from a related party was governed by section 66 of the Superannuation Industry (Supervision) (SIS) Act which contained no provisions for rectification even if the asset was moved back out of an SMSF.
Speaking during a presentation hosted by The Auditors Institute, Sanderson said section 66 carried a blanket prohibition on the acquisition of assets from a related party with exceptions for business real property, listed shares, widely held trusts and in-house assets up to the 5 per cent limit.
“The thing to be aware of is if an asset is contributed into superannuation or acquired by the fund that isn’t one of the exemptions under Section 66 of the SIS Act, it doesn’t void the transaction,” Sanderson said.
“One of the prime examples where this happens is where unlisted shares are transferred into super as a contribution or an acquisition and they are not exempt from the acquisition rules, even if they’re widely held, and we often encounter that as an issue.”
Sanderson explained where this happens there was no possibility of cancelling the transaction nor overturning the breach of section 66 and SMSF trustees should instead be looking at risk mitigation in these circumstances.
“Be mindful of going back and saying you must transfer the asset out of the fund to avoid a breach of section 66. That’s not correct. It’s a breach of section 66 regardless,” she warned.
“The transaction has still occurred, you can’t prevent that transaction from having occurred. You have to deal with it and consider what the risks are of that transaction and the assets staying in there.
“The ATO’s preference is that it’s reversed out or leaves the fund but that doesn’t mean you have to do that.
“It’s just a matter of managing the risk…and alerting the trustees to that.”