Sent: 22-09-2010 12:03:04
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Super Gearing Arrangements
The super gearing laws are beginning to attract considerable interest.
This level of interest is not expected to slacken.
Of great interest to this space has always been the issue of related parties lending money to the super fund. One common area of debate in SMSF circles is the interest rate that SMSFs can charge.
The super laws contain an arm's length rule which is typically misunderstood. The following commentary is provided in my "How To Book Of Self Managed Super Funds":
Under the super laws, it is a requirement that a super fund not invest any fund monies unless it is done so on an arm's length basis.
If the transaction is not being completed on an arm's length basis then the transaction must not be more favourable to the other party than if they were dealing with each other on an arm's length basis.
If a super fund trustee has to deal (in any way) with another party in relation to an asset of the fund then the trustee must deal with that party at arm's length.
Arm's length means that rents or leases should be based on strict commercial rules and any rental payments not remitted on time must be followed up.
Last week the ATO released an Interpretative Decision where they dealt with the issue of a related party not charging a commercial rate of interest for super gearing arrangements.
The ATO said that it was not a breach of the arm's length super laws if a non-commercial interest rate was charged.
There are several issues to consider before thinking that it's now open slather. If a low interest rate is charged then would the 'benefit' received by a super fund be a contribution as per the ATO's recent income tax ruling about super contributions?
Similarly would the non-arm's length income tax provisions which taxes non-arm's length income at penalty rates apply?
What about too high an interest rate? Well presumably this might be deemed to be benefiting the other party at the expense of an SMSF.
I guess the message is to be careful and make decisions after receiving some very good legal advice.
Finally please consider purchasing a copy of "A How To Book Of Self Managed Super Funds". You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
The 3rd edition was released last week.
For details of the changes made since the previous release visit: http://www.atcbiz.com.au/SMSFBookAmendments.pdf
There have been many changes to this book. Version 3.0 contains over 30 pages of new material.
This update has taken longer than I would like however I have been delayed due to a frustratingly steady stream of political policy announcments, review documents and the release of various ATO documents.
Two purchase 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.