A unit trust or company can still satisfy the conditions defined in Superannuation Industry (Supervision) (SIS) Regulation 13.22C even if the entity in question has used gearing to fund an investment at one point in time, a sector specialist has said.
Accurium senior SMSF educator Anthony Cullen noted this means a fund can invest in such a unit trust or company without triggering the in-house asset rules.
“One question we have had through our help desk is [whether an SMSF] can invest in a unit trust that previously had borrowings, but at the time of the acquisition [of units by the] SMSF would satisfy the 13.22C rules [because all loans had been extinguished],” Cullen told attendees of an Accurium technical webinar today.
“When you look at SMSF Determination 2008/1, it does talk about [how the measure needs to be satisfied] at the time that the fund is investing [in the unit trust] for the first time.
“So if the fund has never invested in that trust, it doesn’t matter what it’s done previously. As long as it is satisfying the 13.22C rules at the time the [SMSF] first invests in it, then it’s going to be okay.”
He revealed practitioners also often inquire whether an SMSF can invest in a unit trust under the rules laid out in SIS Regulation 13.22C if the cash injection from the super fund is used to fully pay off an existing borrowing, meaning from that point onwards it will satisfy all of the stipulated superannuation rules.
“That’s going to be a bit of an issue. The reason being is that at the time the super fund invests that unit trust or that company has a borrowing,” he explained.
“It might only be for a short period of time because the investment is going to be used to clear the borrowing, but at the time of investing there is borrowing so it cannot be a 13.22C trust and there is going to be a problem.”
