SMSF members concerned that negative gearing changes proposed in this year’s federal budget may still have an impact due to an investment in a unit trust are unlikely to find that vehicle will cause trouble, a superannuation lawyer has stated.
DBA Lawyers special counsel Bryce Figot noted while draft legislation states the negative gearing changes would not apply to a complying superannuation entity, including an SMSF, there were concerns they may apply indirectly if the fund acquires units in a trust which invests in a negatively geared asset.
“That is going to be very rare because if the unit trust is related the SMSF interest in it is going to be an in-house asset,” Figot told attendees during a recent online presentation.
“What if the SMSF acquires no more than 50 per cent of the units in a unit trust, the other unit holders are unrelated, and they go to the additional effort to make sure the unit trust does not constitute a related trust?” Figot asked, recognising these structures did exist and have limited approval from the ATO.
“In that circumstance, the SMSF units will probably not be an in-house asset. The unit trust can probably borrow.
“So, will the SMSF, indirectly via the unit trust, be affected by the changes to negative gearing?”
According to Figot it was theoretically possible but highly unlikely in practice due to the nature of unit trusts and the assets they typically purchased and held.
“An SMSF indirectly negatively gearing via a unit trust is unlikely to be affected by the changes because they will only affect the unit trust if the following are true [under the proposed changes],” he stated.
“The asset [being acquired] is a residential dwelling that is not a new dwelling and for that reason alone it’s probably not going to affect an SMSF, because that is rarely going to be true.
“The vast majority of geared unrelated unit trusts don’t acquire residential property, they acquire commercial property, and thus they are not going to be subject to the negative gearing changes.
“So the changes are not going to directly impact SMSFs, and I don’t think it will ever indirectly impact funds invested in unit trusts.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason