There is a danger an arrangement between an SMSF and a related-party service provider can result in a breach of the Superannuation Industry (Supervision) (SIS) Act with regard to the acquisition of assets, a sector specialist has warned.
Specifically, Accurium senior SMSF educator Anthony Cullen noted these situations could lead to a breach of SIS Act section 66, which stipulates a trustee must not acquire an asset from the related party of the fund with which they are associated.
Cullen pointed out a breach of this nature could occur in the simple provision of materials for work on an SMSF property performed by a building company meeting the definition of a related party.
“If you’ve got a related-party builder who is providing a service to the super fund, more often than not that related-party builder is going to be supplying the material [for the project at hand],” he told attendees of a technical webinar held today.
“It might be the kitchen cabinets, the oven, the stove, or the bath, or the toilets, the basin, the vanity cabinets, the mirror on the wall. They are all assets that are going into the super fund that are being supplied by that builder.
“The issue there is that we’ve got to [refer] to section 66 [of the SIS Act], our acquisition [of assets] from related-party rules, and generally where those assets are significant, you’re going to have a problem [and] you’ll have a breach of section 66.”
He referred trustees and practitioners to SMSF Ruling 2010/5 as an ATO instrument that provides greater detail as to what constitutes a significant asset in these circumstances and, in turn, whether SIS Act section 66 will apply.
“As an example, if [the related-party builder was] to do some repair work to the bathroom rather than a replacement and they might [change] a washer, that [would be considered] insignificant in the grand scheme of things as opposed to replacing a bathroom at the same time,” he explained.
He indicated the latter would likely be considered the supply of significant assets, leading to the application of SIS Act section 66.
