Make sure you know the strict rules before you transact between your Self Managed Super Fund and related parties.
The Australian Tax Office shares a series of great videos that help you better understand how Self Managed Super Funds work. Below we share with you their video titled “SMSF – related party transactions” and a transcript below.
Transcript of ATO video
Source: AUSTRALIAN TAXATION OFFICE | ATO.GOV.AU
‘SMSF – RELATED THIRD PARTY TRANSACTIONS’ VIDEO TRANSCRIPT
There are a lot of rules around transactions between SMSFs and related parties. This is to ensure funds are run for the sole purpose of providing super benefits to members when they retire.
This means trustees, members, relatives and other related entities of a fund cannot get any immediate or present day benefit outside that purpose.
Meet Tony – Tony is the only member of his SMSF.
Ryan is his son and Kelly is his sister.
Ryan wants to buy his first home. He asks Tony if he can borrow money from Tony’s fund for his deposit and use the fund’s assets as security for the home loan.
Both of these options are strictly prohibited.
SMSFs are not allowed to loan money or provide financial assistance to members or their relatives.
If Ryan wanted to buy a property from Tony’s SMSF, it would have to be at market value.
An SMSF can’t sell an asset to a related party if the transaction is not on commercial terms.
In-house assets are loans to, leases with, or investments in related parties. In-house assets can’t be more than 5% of the value of the fund’s total assets.
So Tony’s fund couldn’t lease the property to Ryan as the value of the property is more than 5% of total fund assets.
SMSFs are generally not allowed to acquire assets from related parties, so Tony’s fund would not be able to purchase a residential unit that his sister Kelly owned.
There are a few exceptions, such as business real property and listed securities.
There are rules about collectable assets and related parties too, so when Kelly offers to store the fund’s artwork at her home, Tony declines.
He keeps the artwork in a secure art storage facility instead, because related parties aren’t allowed to lease, store or use an SMSF’s collectable assets.
To avoid potential problems, many trustees choose to avoid related party transactions altogether.
If you’re unsure what’s allowed, you should contact an SMSF professional to help you get it right.
For more SMSF information, take a look at our other videos or visit the ATO website at ato.gov.au