The ATO has warned SMSF trustee(s) and private companies not to invest in trusts with the primary aim of making funds available to lend to members or trustee(s) of the SMSF.Nick Sulman
The ATO’s alert concerns an SMSF investing in an unrelated trust, which then lends the money to a member (or relative of a member) of the SMSF.
The ATO considers that such arrangements are an attempt to circumvent the prohibition on SMSF trustee(s) using the SMSF’s money to lend to, or to provide financial assistance to, members of the SMSF. The prohibition is in section 65 of the Superannuation Industry (Supervision) Act 1993 ( SIS Act ).
The SIS Act prohibits SMSFs from using the SMSF’s resources to lend money to, or provide financial assistance to, a member (or to a relative of the member). [i]
Breaching this provision may render the SMSF non-compliant for tax purposes — which means the SMSF is taxed at 45% on the SMSF’s capital value and its current year income.
The ATO is concerned with arrangements of the following type (or something similar):
The ATO believes these arrangements present the following potential breaches of law:
The core issue of the alert is one that the ATO is most concerned about — namely, conferring benefits on members or their relatives. The Commissioner has other publicly available commentary on this issue. For instance, according to SMSF Ruling SMSFR 2008/1, a trustee contravenes section 65(1)(b) of the SIS Act by doing any of the following:
The Trustee(s) of an SMSF who provide financial assistance in this way face potential penalties of:
For more information, contact Maddocks on (03) 9288 0555 and ask for a member of the Maddocks Superannuation or Tax and Revenue Team.
You can access various ClearLaw articles for more relevant information relating to taxation issues:
[i] Section 65(1)(b).
Andrew is a Partner in the Maddocks Tax & Revenue team.
Andrew provides advice on:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Andrew was a tax consultant at a Big 4 Chartered Accounting Firm.
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For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.