Compliance, In-house assets, Investments, Regulation

Related-party challenge recognised

ATO Paul Delahunty Related parties In-house assets Part 8 associates

The difficulty trustees may have in complying with the related-party rules has been noted by the ATO in the context of the total number of SMSF members.

The ATO has acknowledged the difficulty SMSF trustees face in adhering to their compliance obligations regarding related parties and, as a consequence, the in-house asset rules.

Speaking at the SMSF Association National Conference 2024 in Brisbane last week, ATO superannuation and employer obligations director Paul Delahunty firstly recognised how challenging the situation is for trustees, particularly in relation to Part 8 associates as defined by the Superannuation Industry (Supervision) Act.

“When we talk about [Part 8] associates, the breadth of the population is unknown. In terms of the total SMSF population we know there are [around] 600,000 SMSFs, which is made up of 1.1 million members, and when you think about the connections those members might have via the related- party rules, that adds up to a substantial number of associations that might be in place,” Delahunty noted during a conference workshop.

Despite this observation, he revealed breaches involving acquiring assets from a related party accounted for 1 per cent of issues included on audit contravention reports (ACR) for the 2022 financial year, while breaches of the in-house asset rules made up 16.5 per cent of items included on ACRs, which was only second behind compliance issues regarding loans to members, representing 19.4 per cent of actions reported.

Workshop moderator ASF Audits head of education Shelley Banton suggested there was only one particular area on which practitioners and their clients need to focus to make managing the related-party issue easier.

To this end, Banton pointed out there were three categories of Part 8 associates where two of them, regarding companies and partnerships, can largely be ignored.

“[These two categories can generally be ignored] because we’re looking at the Part 8 associate of the individual, not the Part 8 associate of [say] the partnership,” she said.

Further, she recommended an efficient approach to deal with the issue.

“The best thing to do is to start from the self-managed super fund and work your way out. If you start with the entity [in question] and try to work your way in, you will get into a puzzle and you won’t be able to unravel it because you’ll start bringing in [the sections pertaining to companies and partnerships] when they may not be applicable,” she noted.

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