A senior audit firm executive has warned SMSF trustees not act any differently with regard to an unpaid present entitlement (UPE) from a unit trust on the strength of a decision the Full Federal Court handed down recently.
“Some in the industry are trying to pull a very long bow with the recent case which was the Commissioner of Taxation v Bendel. This case had nothing to do with an SMSF but the principle of the case was testing the definition of a loan which is the same in tax law as it is in section 10(1) of [the Superannuation Industry (Supervision) Act],” ASF Audits head of technical Shelley Banton noted.
“[Here] there was an unpaid present entitlement owing to a corporate beneficiary that wasn’t classified as a loan under the Income Tax Assessment Act. What turned this case on its head was the court’s ruling that a loan requires more than a creditor/debtor relationship that we see with a UPE,” she explained to attendees of a technical webinar held today.
Banton pointed out the decision was made due to the fact the relevant journal entries for the transaction in question did not establish an obligation for the amount of money to be repaid preventing it from being classified as a loan.
However there was one aspect of the Bendel situation SMSF practitioners and trustees must acknowledge in the immediate term.
“What we want to avoid here is prematurely throwing the baby out with the bath water and thinking that a UPE in a related trust to an SMSF is no longer a problem,” she said.
“[That’s] because at the moment the ATO is appealing the outcome so [these situations should continue to be treated as] business as usual.
“You don’t want your clients to be a test case and front page news like Mr Bendel. So please, at this point in time, totally ignore the Bendel case because it does not matter,” she concluded.
