An SMSF specialist has reminded practitioners of the proper treatment and valuation procedure as set out in a current draft tax ruling if a trustee performs work for their super fund in a professional capacity on commercial terms, but does not issue an invoice for the services provided.
Accurium senior SMSF educator Anthony Cullen suggested the situation could occur where a fund purchases a block of land and its trustee, a builder by trade, constructs townhouses on the asset at market value, but does not invoice the fund for the work.
Cullen referenced draft Tax Ruling (TR) 2010/1DC2 paragraph 32 as to how the modification to the asset must be treated. Specifically, this paragraph stipulates the appreciation of the property must be recognised as a contribution, stating: “A contribution by way of value shifting to an asset owned by a superannuation provider is made when the capital of the fund is increased because of the increase in the value of the asset.”
However, he emphasised care must be taken over how to record this type contribution.
“The vital point here is that the value of the contribution is the value of the increase in the asset, not just the value of the work that [the builder] has undertaken,” he explained.
“So in these circumstances you might need to get a valuation of the vacant land before any work is done [and then] once all the work is completed, you might want to get that same valuer [to perform another valuation on the asset].”
According to Cullen, trustees following these steps would ultimately benefit from an additional compliance perspective.
To this end, he noted the newly introduced paragraph 32A of TR 2010/1DC2 confirms if the aforementioned valuation procedures are carried out, it will be evidence the parties involved are dealing on an arm’s-length basis. If this is the case, paragraph 32A stipulates: “In these circumstances, the ‘non-arm’s-length income’ provisions in section 295-550 [of the Income Tax Assessment Act] will not apply to ordinary or statutory income that is derived with respect to the asset to which the contribution relates.”
