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IHA breach not about valuations

The true nature of an in-house asset breach is not about whether the valuation of the holdings involved exceeds the allowable threshold.

The true nature of an in-house asset breach is not about whether the valuation of the holdings involved exceeds the allowable threshold.

A technical specialist has reminded practitioners of the true nature of a breach regarding the in-house asset rules and how it does not relate exclusively to the value of SMSF assets.

“On 30 June we take our in-house assets and determine if their value is greater than 5 per cent [of the fund’s total assets and] and if it is, we have to act. But this is where the legislation becomes interesting because going over the 5 per cent limit is not actually a breach,” Smarter SMSF education and technical manager Tim Miller told attendees of a SuperGuardian webinar held today.

“What the legislation says is if your in-house assets … are above 5 per cent, then the trustee is required to put in place a written plan [that needs to be executed] by the end of the next financial year that identifies which in-house assets will be disposed of to get [the total value of the in-house assets] below the 5 per cent limit.

“So it’s a very specific set of plans that have to be written.”

Miller took the opportunity to dispel the myth trustees can just make additional contributions in the subsequent financial year to ensure the in-house assets no longer represent 5 per cent or more of the value of the SMSF’s total assets. However, he recognised contributions could play a part in managing a breach of the in-house asset rules.

“Once you’ve gone over the 5 per cent [limit], it’s too late [to make contributions to rectify the breach],” he confirmed.

“What you should be doing is reviewing your in-house assets toward the end of the financial year from a valuation point of view and if there is any potential opportunity [their value] is going to be over the 5 per cent [threshold], then look at whether there is an opportunity to utilise bring-forward [non-concessional] contributions or another way you can put money into the fund to ensure that come 30 June you’re not over that in-house asset limit.”

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