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Check in-house assets before 30 June, trustees reminded


Before 30 June, SMSF trustees need to check the level of any in-house assets to ensure they haven't exceeded the 5 per cent limit, says a senior technical adviser.

By Keeli Cambourne 14 minute read

Craig Day, head of technical services for Colonial First State, said in the latest FirstTech podcast that in-house assets are generally defined in the Superannuation Industry (Supervision) Act to include an investment in a related company or trust, a loan to a related party, or an asset of the fund subject to a lease or lease arrangement with a related party.

“A related company or trust includes a company or trust that a member and/or their associates control by owning more than 50 per cent of the shares or units, or where they have effective control. Other related parties include the members of the fund and their relatives, the non-member trustee (or director of the corporate trustee) of a single member fund, and a member’s partners or partnerships involving the member, ” he said.

Under the SIS investment rules, a super fund is permitted to acquire an in-house asset from a related party at market value where the acquisition will not cause the total level of the fund’s in-house assets to exceed the 5 per cent in-house asset limit at that time.


Day said this means the trustees will need to compare the market value of the asset being acquired plus any other in-house assets the fund already owns against the total market value of all the fund’s assets when calculating how much a fund can invest into, or loan to, a related company or trust – remembering funds are prohibited from lending to members and relatives.

“Trustees also need to be mindful of the five per cent in-house asset limit when leasing assets to related parties, as leasing an asset to a related party is taken to be the same as acquiring an in-house asset from a related party for the purposes of the in-house asset rules,” he said.

“Once a fund has acquired an in-house asset, it’s important to remember that it’s not just set and forget from that time on. Instead, trustees are required to measure the total level of the fund’s in-house assets each 30 June and put in place a plan to sell down the amount of any excess by the end of the following year where it exceeds the five per cent limit. This is to ensure a fund’s in-house asset levels don’t creep up over time and end up potentially posing a material risk to the fund if things go wrong.”

He said for example if a fund with total assets of $1 million was assessed to have an in-house asset level on 30 June of six per cent, the trustees would be required to put in place a written plan that identifies the amount of the excess, which in this case would be $10,000 ((6%-5%) x $1m = $10,000) and also the steps they will take to dispose of at least that value of the fund’s in-house assets by the end of the following year.

“That is, if the fund is over on 30 June, the trustees will now be forced to dispose of one or more of the fund’s in-house assets within the next 12 months,” Day said.

Where a fund’s in-house assets consist of shares or units in a related company or trust, the trustees can comply by selling down an amount of the shares or units that is at least equivalent in value to the amount of the excess calculated on 30 June.

“Using the above example, the trustees would need to dispose of at least $10,000 in the shares or units by the end of the following year,” he added.

“Alternatively, where a fund’s in-house asset was a physical asset that was being leased to a related party, such as a property that was being leased to a related family business which subsequently failed the business real property definition, this would generally result in the fund being forced to dispose of the whole asset – which could then have significant tax implications for the fund as well as knock-on implications for the related family business.”

He added where the in-house asset was a loan to a related company or trust (remembering that loans to members and relatives are prohibited), this may require the trustee to demand full or partial early repayment of the loan if possible or to dispose of the loan asset to another party.

“This all obviously creates a range of headaches which could potentially be avoided by proactively estimating their fund’s in-house asset levels in the lead up to 30 June,” Day said.

“Where it will be close, or the fund will be just over the five per cent limit, the members could consider making additional contributions prior to the end of 30 June to water down the level of the fund’s in-house assets. Alternatively, where a physical asset is being leased to a related party it would be important to extinguish the lease and for the related party to cease using the asset before 30 June.”

He concluded that the important thing with in-house assets is to be ahead of the game.

“If the trustee only becomes aware of the problem when they are preparing the fund’s annual return, it’s too late and there will be nothing they can do to avoid needing to dispose of potentially valuable assets,” he said.

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