Sent: 09-12-2009 10:52:02
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More To The SMSF In-House Asset Rules Than Meets The Eye
In my DIY Super article published in the Wealth section of today's Australian newspaper, I refer to a recent ATO Practise Law Statement about Self Managed Super Funds and in-house assets.
Some important background information in my Australian article:
"An in-house asset is a loan to or an investment in parties the law deems to be related to a super fund. It also includes the leasing of a super fund asset to any of those related parties. A related party includes the members of a super fund, their relatives and trusts or companies controlled by the members or relatives.
"Ordinarily no more than 5 percent of the market value of a super fund's total assets can be in-house assets. Super fund trustees must continually test their in-house asset holdings to make sure their fund doesn't breach the 5 percent threshold.
"When this 5 percent test is breached a super fund trustee has to develop a written plan on how they will reduce their in-house assets below the five percent limit by the end of the following financial year in which the breach first occurred. Trustees then have to implement this plan. The super fund's auditor signs-off on the reduction plan and that it has actually been implemented."
The purpose of the ATO's Practise Law Statement is to provide some guidance as to when the ATO might deem an asset to be an in house asset and hence not subject to the 5% restriction.
In my article I note that the ATO will only exercise their discretion if
- The super fund's trustee has complied with all super law requirements when investing their super fund's assets, and
- The events which caused the 5% breach were unforeseeable and beyond the trustee's control
The tax office will not normally exercise their discretion because:
- Changing economic conditions (such as the Global Financial Crisis)
- The trustee was ignorant of the super laws
- A trustee relied on the care and diligence of a professional who did not provide the necessary advice
- The super fund obtained "a significant benefit" from the investment
- The trustee wanted to avoid costs or difficulties to bring the fund's in-houses assets to below the 5% limit
Since I wrote this article some additional information has come to light.
- What might happen if a trustee tried to sell an asset (to fall within the 5% in house asset rule) but could not sell the asset? The ATO will overlook a breach of the in-house asset rules if a trustee can show that they actively tried to sell the asset but the inability to sell was beyond the trustees control and the 5% in-house restriction is breached because of a decline in value of non-in house assets
- What happens if the market value of an asset recovers by the next balance date? The ATO might overlook the failure to implement a divestment strategy. In this case the 5% in-house restriction is breached because of a decline in value of non-in house assets and the 5% in-house restriction ceases to be breached because of an improvement in the value of those non-in house assets
- Making contributions after a balance date to rectify an 5% in house asset breach will not work
Those who are having difficult dealing with complex issues as they prepare 2009 financial accounts should consider seeking expert advice.
Finally please consider purchasing a copy of my book. You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
Two options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST).
The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.