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  • Trust

    Trust

    • Acknowledgement of Trust (already own asset) - $165
    • Change Appointor and/or Guardian of Family Trust - $110
    • Change of Name of Family Trust - $110
    • Change Trustee of Family Trust - $110
    • Dealing with Forgiven Debts (White Paper) - $55
    • Debt Recognition (including pre-Div 7A Loans) - $33
    • Declaration of Trust (before you buy) - $110
    • Div 7A Loan Agreement - $65
    • Div 7A Loan Agreement for UPE - $65
    • Family Trust - $165
    • Family Trust - Streaming & Bamford Update - $165
    • Family Trust - Update to Allow Change of Appointor and Guardian - $165
    • Family Trust - Update to allow Sole Trustee - $55
    • Family Trust - Update to Exclude Foreign Persons (NSW) - $198
    • Family Trust - Wind up/Vesting - $259
    • Forgiveness of Debt - $121
    • Opening Minutes for the Unit Trust - $33
    • Partnership Deed - $220
    • Release of Unpaid Trust Entitlement - $121
    • The new small business restructure roll-over rules in practice (White Paper) - $55
    • Trust Distribution Minutes Library for 2008/09 - $99
    • Trust Distribution Minutes Library for 2009/10 - $99
    • Trust Distribution Minutes Library for 2010/11 - $99
    • Trust Distribution Minutes Library for 2011/12 - $99
    • Trust Distribution Minutes Library for 2012/13 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2012/13 - Single-Use - $110
    • Trust Distribution Minutes Library for 2013/14 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2013/14 - Single-Use - $110
    • Trust Distribution Minutes Library for 2014/15 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2014/15 - Single-Use - $110
    • Trust Distribution Minutes Library for 2015/16 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2015/16 - Single-Use - $110
    • Trust Distribution Minutes Library for 2016/17 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2016/17 - Single-Use - $110
    • Trust Distribution Minutes Library for 2017/18 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2017/18 - Single-Use - $110
    • Trust Distribution Minutes Library for 2018/19 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2018/19 - Single-Use - $110
    • Trust Distribution Minutes Library for 2019/20 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2019/20 - Single-Use - $121
    • Trust Distribution Minutes Library for 2020/21 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2020/21 - Single-Use - $121
    • Trust Distribution Minutes Library for 2021/22 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2021/22 - Single-Use - $121
    • Trust Distribution Minutes Library for 2022/23 - Multi-Use - $363
    • Trust Distribution Minutes Library for 2022/23 - Single-Use - $132
    • Trust Distribution Minutes Library for 2023/24 - Multi-Use - $363
    • Trust Distribution Minutes Library for 2023/24 - Single-Use - $132
    • Trust Distribution Minutes Library for 2024/25 - Multi-Use - $363
    • Trust Distribution Minutes Library for 2024/25 - Single-Use - $132
    • Unit Trust - $165
    • Unit Trust - Add New Member Kit - $110
  • Superannuation

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    • Acknowledgement of Trust (already own asset) - $165
    • Commercial Lease - $275
    • Declaration of Trust (before you buy) - $110
    • Derivative Risk Statement for SMSF - $65
    • Investment Strategy for Self Managed Super 15/16 - $65
    • Investment Strategy for Self Managed Super 16/17 - $65
    • Investment Strategy for Self Managed Super 17/18 - $65
    • Investment Strategy for Self Managed Super 18/19 - $65
    • Investment Strategy for Self Managed Super 19/20 - $65
    • Investment Strategy for Self Managed Super 20/21 - $65
    • Investment Strategy for Self Managed Super 21/22 - $65
    • Investment Strategy for Self Managed Super 22/23 - $65
    • Investment Strategy for Self Managed Super 23/24 - $65
    • Investment Strategy for Self Managed Super 24/25 - $65
    • Pension Pack for Self Managed Super - $299
    • Product Disclosure Statement (general) - $66
    • Product Disclosure Statement (Pension only) - $99
    • Self Managed Superannuation Fund Deed - $165
    • SMSF - Minute to Appoint Administrator - $33
    • SMSF - Minute to Appoint an Auditor - $33
    • SMSF - Minute to Approve Financial Statements - $33
    • SMSF - Minute to Insure The Members - $33
    • SMSF - Update Rules - $165
    • SMSF Limited Recourse Borrowing Arrangement - $330
    • SMSF Restricted Commercial Property Assessment - $695
    • SMSF Restricted Residential Property Assessment - $315
    • Statutory Declaration - $0
  • Estate Planning

    Estate Planning

    • Codicil to change the Executor - $99
    • Confidentiality Agreement (Non Disclosure) - $99
    • Debt Recognition (including pre-Div 7A Loans) - $33
    • Enduring Power of Attorney - NSW - $55
    • Enduring Power of Attorney - SA - $55
    • Enduring Power of Attorney - WA - $55
    • Enduring Power of Attorney (Financial, Personal/Health) - QLD - $55
    • Enduring Power of Guardianship - NSW - $55
    • Enduring Power of Guardianship - WA - $55
    • Power Of Attorney By Company - $99
    • Will - Married or Defacto No Children - $95
    • Will - Married or Defacto with Children - $95
    • Will - Single No Children - $110
    • Will - Single With Children - $110
  • Commercial

    Commercial

    • Advanced Legal Health Check for Businesses - $18
    • Buy a House with Friends Agreement - $110
    • Commercial Lease - $275
    • Confidentiality Agreement (Non Disclosure) - $99
    • Co-Owners Agreement - $110
    • Dealing with Forgiven Debts (White Paper) - $55
    • Debt Recognition (including pre-Div 7A Loans) - $33
    • Declaration of Trust (before you buy) - $110
    • Demand and Statement of Claim for Debt - NSW - $88
    • Demand and Summons for Debt - VIC - $88
    • Demand and Summons for Debt - WA - $88
    • Div 7A Loan Agreement - $65
    • Div 7A Loan Agreement for UPE - $65
    • Forgiveness of Debt - $121
    • Loan Agreement (No Security) - $110
    • Release of Unpaid Trust Entitlement - $121
    • Statutory Declaration - $0
    • The new small business restructure roll-over rules in practice (White Paper) - $55
  • Employment

    Employment

    • Confidentiality Agreement (Non Disclosure) - $99
    • Employment - Conduct Issues Letter - $33
    • Employment - Employee Expenses Policy - $55
    • Employment - Performance Issues Letter - $33
    • Employment - Request for Medical Information - $33
    • Employment - Termination Letter - $33
    • Employment - Transferring Employee Letter - $33
    • Employment Contract - $120
    • Independent Contractors Agreement - $110
    • Partnership Deed - $220
    • Statutory Declaration - $0
  • Company

    Company

    • Acknowledgement of Trust (already own asset) - $165
    • Adopt Committee Recommendations kit - $33
    • Appoint a Committee kit - $33
    • Appoint an Alternate Director kit - $33
    • Appoint Managing Director & Confer Powers kit - $33
    • Buy a House with Friends Agreement - $110
    • Change Registered Office kit - $33
    • Commercial Lease - $275
    • Company (ELodgement) - $716
    • Company (No Elodgement) - $99
    • Company Constitution Update - $99
    • Confidentiality Agreement (Non Disclosure) - $99
    • Co-Owners Agreement - $110
    • Debt Recognition (including pre-Div 7A Loans) - $33
    • Declaration of Trust (before you buy) - $110
    • Demand and Statement of Claim for Debt - NSW - $88
    • Demand and Summons for Debt - VIC - $88
    • Demand and Summons for Debt - WA - $88
    • Director‘s Indemnity Agreement - Compulsory Insurance - $197
    • Director‘s Indemnity Agreement - No Insurance - $197
    • Div 7A Loan Agreement - $65
    • Div 7A Loan Agreement for UPE - $65
    • Employment Contract - $120
    • Family Trust - Wind up/Vesting - $259
    • Forgiveness of Debt - $121
    • Independent Contractors Agreement - $110
    • Loan Agreement (No Security) - $110
    • Minutes for Members to Inspect Books - $33
    • Minutes for Resigning Director - $33
    • Opening Minutes for the Unit Trust - $33
    • Partnership Deed - $220
    • Power Of Attorney By Company - $99
    • Release of Unpaid Trust Entitlement - $121
    • Remove a Managing Director kit - $33
    • Remove and Replace a Director kit - $44
    • Replace Company Secretary kit - $44
    • Self Managed Superannuation Fund Deed - $165
    • Statutory Declaration - $0
    • Transfer of Shares Kit - $0
    • Unit Trust - $165
    • Unit Trust - Add New Member Kit - $110
  • CPD Webinars

    CPD Webinars

    • CPD Webinar - End Of Financial Year SMSF Planning 2025 - $110
    • CPD Webinar - End Of Financial Year Tax Rollup 2025 - $110
    • CPD Webinar - Tax and Cryptocurrency – A Square Peg in a Round Hole - $110
    • CPD Webinar - Unlocking Microsoft 365 Copilot - $110
    • CPD Webinar - UPEs and Div 7A – Implications of the Recent Bendel Decision - $110
    • CPD Webinar - When Directors are Personally Liable - $110
    • Webinar On Demand - Foreign Trust Taxation Issues - $110
    • Webinar On Demand - Advising on Family Trusts in the 21st Century - $110
    • Webinar On Demand - AI in Professional Practices - Risks and Benefits - $110
    • Webinar On Demand - Drafting Estate Planning Documents to meet Litigation Risks - $110
    • Webinar On Demand - Employee Share Schemes - $99
    • Webinar On Demand - Family Law and Trusts - $110
    • Webinar On Demand - How Binding are Financial Agreements - $110
    • Webinar On Demand - Professional Advisers as Appointor of their Client’s Family Trust - $110
    • Webinar On Demand - Recent Changes in Family Law - $99
    • Webinar On Demand - Sexual Harassment Laws in Australia - $110
    • Webinar On Demand - Tax & Family Trusts - $99
    • Webinar On Demand - Testamentary Trusts 101 - $110
    • Webinar On Demand - Trust Distributions and Section 100A - $99
    • Webinar On Demand - When Directors are Personally Liable - $110
    • Webinar On Demand - Where Death Benefit Nominations Go Wrong - $110
  • All documents

    All documents

    • Acknowledgement of Trust (already own asset) - $165
    • Adopt Committee Recommendations kit - $33
    • Advanced Legal Health Check for Businesses - $18
    • Appoint a Committee kit - $33
    • Appoint an Alternate Director kit - $33
    • Appoint Managing Director & Confer Powers kit - $33
    • Buy a House with Friends Agreement - $110
    • Change Appointor and/or Guardian of Family Trust - $110
    • Change of Name of Family Trust - $110
    • Change Registered Office kit - $33
    • Change Trustee of Family Trust - $110
    • Codicil to change the Executor - $99
    • Commercial Lease - $275
    • Company (ELodgement) - $716
    • Company (No Elodgement) - $99
    • Company Constitution Update - $99
    • Confidentiality Agreement (Non Disclosure) - $99
    • Co-Owners Agreement - $110
    • CPD Webinar - End Of Financial Year SMSF Planning 2025 - $110
    • CPD Webinar - End Of Financial Year Tax Rollup 2025 - $110
    • CPD Webinar - Tax and Cryptocurrency – A Square Peg in a Round Hole - $110
    • CPD Webinar - Unlocking Microsoft 365 Copilot - $110
    • CPD Webinar - UPEs and Div 7A – Implications of the Recent Bendel Decision - $110
    • CPD Webinar - When Directors are Personally Liable - $110
    • Dealing with Forgiven Debts (White Paper) - $55
    • Debt Recognition (including pre-Div 7A Loans) - $33
    • Declaration of Trust (before you buy) - $110
    • Demand and Statement of Claim for Debt - NSW - $88
    • Demand and Summons for Debt - VIC - $88
    • Demand and Summons for Debt - WA - $88
    • Derivative Risk Statement for SMSF - $65
    • Director‘s Indemnity Agreement - Compulsory Insurance - $197
    • Director‘s Indemnity Agreement - No Insurance - $197
    • Disclaimer - Email - $55
    • Div 7A Loan Agreement - $65
    • Div 7A Loan Agreement for UPE - $65
    • Employment - Conduct Issues Letter - $33
    • Employment - Employee Expenses Policy - $55
    • Employment - Performance Issues Letter - $33
    • Employment - Request for Medical Information - $33
    • Employment - Termination Letter - $33
    • Employment - Transferring Employee Letter - $33
    • Employment Contract - $120
    • Enduring Power of Attorney - NSW - $55
    • Enduring Power of Attorney - SA - $55
    • Enduring Power of Attorney - WA - $55
    • Enduring Power of Attorney (Financial, Personal/Health) - QLD - $55
    • Enduring Power of Guardianship - NSW - $55
    • Enduring Power of Guardianship - WA - $55
    • Family Trust - $165
    • Family Trust - Streaming & Bamford Update - $165
    • Family Trust - Update to Allow Change of Appointor and Guardian - $165
    • Family Trust - Update to allow Sole Trustee - $55
    • Family Trust - Update to Exclude Foreign Persons (NSW) - $198
    • Family Trust - Wind up/Vesting - $259
    • Forgiveness of Debt - $121
    • Independent Contractors Agreement - $110
    • Investment Strategy for Self Managed Super 15/16 - $65
    • Investment Strategy for Self Managed Super 16/17 - $65
    • Investment Strategy for Self Managed Super 17/18 - $65
    • Investment Strategy for Self Managed Super 18/19 - $65
    • Investment Strategy for Self Managed Super 19/20 - $65
    • Investment Strategy for Self Managed Super 20/21 - $65
    • Investment Strategy for Self Managed Super 21/22 - $65
    • Investment Strategy for Self Managed Super 22/23 - $65
    • Investment Strategy for Self Managed Super 23/24 - $65
    • Investment Strategy for Self Managed Super 24/25 - $65
    • Loan Agreement (No Security) - $110
    • Minutes for Members to Inspect Books - $33
    • Minutes for Resigning Director - $33
    • Opening Minutes for the Unit Trust - $33
    • Partnership Deed - $220
    • Pension Pack for Self Managed Super - $299
    • Power Of Attorney By Company - $99
    • Product Disclosure Statement (general) - $66
    • Product Disclosure Statement (Pension only) - $99
    • Release of Unpaid Trust Entitlement - $121
    • Remove a Managing Director kit - $33
    • Remove and Replace a Director kit - $44
    • Replace Company Secretary kit - $44
    • Self Managed Superannuation Fund Deed - $165
    • SMSF - Minute to Appoint Administrator - $33
    • SMSF - Minute to Appoint an Auditor - $33
    • SMSF - Minute to Approve Financial Statements - $33
    • SMSF - Minute to Insure The Members - $33
    • SMSF - Update Rules - $165
    • SMSF Limited Recourse Borrowing Arrangement - $330
    • SMSF Restricted Commercial Property Assessment - $695
    • SMSF Restricted Residential Property Assessment - $315
    • Statutory Declaration - $0
    • The new small business restructure roll-over rules in practice (White Paper) - $55
    • Transfer of Shares Kit - $0
    • Trust Distribution Minutes Library for 2008/09 - $99
    • Trust Distribution Minutes Library for 2009/10 - $99
    • Trust Distribution Minutes Library for 2010/11 - $99
    • Trust Distribution Minutes Library for 2011/12 - $99
    • Trust Distribution Minutes Library for 2012/13 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2012/13 - Single-Use - $110
    • Trust Distribution Minutes Library for 2013/14 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2013/14 - Single-Use - $110
    • Trust Distribution Minutes Library for 2014/15 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2014/15 - Single-Use - $110
    • Trust Distribution Minutes Library for 2015/16 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2015/16 - Single-Use - $110
    • Trust Distribution Minutes Library for 2016/17 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2016/17 - Single-Use - $110
    • Trust Distribution Minutes Library for 2017/18 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2017/18 - Single-Use - $110
    • Trust Distribution Minutes Library for 2018/19 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2018/19 - Single-Use - $110
    • Trust Distribution Minutes Library for 2019/20 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2019/20 - Single-Use - $121
    • Trust Distribution Minutes Library for 2020/21 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2020/21 - Single-Use - $121
    • Trust Distribution Minutes Library for 2021/22 - Multi-Use - $350
    • Trust Distribution Minutes Library for 2021/22 - Single-Use - $121
    • Trust Distribution Minutes Library for 2022/23 - Multi-Use - $363
    • Trust Distribution Minutes Library for 2022/23 - Single-Use - $132
    • Trust Distribution Minutes Library for 2023/24 - Multi-Use - $363
    • Trust Distribution Minutes Library for 2023/24 - Single-Use - $132
    • Trust Distribution Minutes Library for 2024/25 - Multi-Use - $363
    • Trust Distribution Minutes Library for 2024/25 - Single-Use - $132
    • Unit Trust - $165
    • Unit Trust - Add New Member Kit - $110
    • Webinar On Demand - Foreign Trust Taxation Issues - $110
    • Webinar On Demand - Advising on Family Trusts in the 21st Century - $110
    • Webinar On Demand - AI in Professional Practices - Risks and Benefits - $110
    • Webinar On Demand - Drafting Estate Planning Documents to meet Litigation Risks - $110
    • Webinar On Demand - Employee Share Schemes - $99
    • Webinar On Demand - Family Law and Trusts - $110
    • Webinar On Demand - How Binding are Financial Agreements - $110
    • Webinar On Demand - Professional Advisers as Appointor of their Client’s Family Trust - $110
    • Webinar On Demand - Recent Changes in Family Law - $99
    • Webinar On Demand - Sexual Harassment Laws in Australia - $110
    • Webinar On Demand - Tax & Family Trusts - $99
    • Webinar On Demand - Testamentary Trusts 101 - $110
    • Webinar On Demand - Trust Distributions and Section 100A - $99
    • Webinar On Demand - When Directors are Personally Liable - $110
    • Webinar On Demand - Where Death Benefit Nominations Go Wrong - $110
    • Will - Married or Defacto No Children - $95
    • Will - Married or Defacto with Children - $95
    • Will - Single No Children - $110
    • Will - Single With Children - $110
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Print Version Back

Types of assets that can be acquired by a Self Managed Superannuation Fund from a related party

Issue: 453 - Wednesday, 26 March 2014

In this Issue

  1. Types of assets that can be acquired by a Self Managed Superannuation Fund from a related party
  2. Revised Privacy Policy

1. Types of assets that can be acquired by a Self Managed Superannuation Fund from a related party

I recently outlined the types of assets that can be acquired by a Self Managed Superannuation Fund (SMSF) from an “unrelated party”. This  Bulletin covers the types of assets that can be acquired by an SMSF from a “related party”.

When it comes to whether the acquisition of assets under the superannuation law is allowable, the ability of an SMSF to acquire an asset hinges on whether the asset is being acquired from a related party or is an investment in a related party of the SMSF.

So let’s start with the definition of a “related party” under the Superannuation Industry (Supervision) Act 1993 (SISA).

Related Party

The definition of a “related party” under section 10 of the SISA is very broad and includes:

  • members of the SMSF;
  • relatives of members of the SMSF;
  • any business associates of the SMSF members and their relatives;
  • a partner in a partnership business including the spouse and children of the partner;
  • an associate of a partner in a partnership business;
  • a company where the members and/or their relatives in relation to the company hold more than fifty per cent (50%) of the shares and voting rights in the company;
  • a trust where the members and/or their relatives in relation to the trust control the trust or have a fixed entitlement to more than fifty per cent (50%) of the capital or income of the trust.

A “relative” of a member of an SMSF includes a spouse, parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or of his or her spouse. 

Members of same-sex relationships, and children from those relationships, are included in the above definition and receive the same treatment as opposite-sex relationships under the SISA.

Before we proceed with identifying what type of assets can be acquired by an SMSF from a related party, it is important to keep in mind that the following provisions also applies to investment transactions with related parties.  Those provisions in the SISA are:

  • The sole purpose test: the investment must not conflict with the sole purpose of providing retirement related benefits to the member and/or dependants of the SMSF.
  • Arm’s length transaction: the purchase price paid on the asset acquired by the SMSF must be at market value and the transaction must be conducted at arm’s length.
  • Investment strategy:  the asset acquired by the SMSF must be in accordance with the investment strategy formulated for the SMSF.
  • Borrowings:  if the SMSF needs to borrow money to acquire the asset, then the borrowing must be structured correctly in accordance with the limited recourse borrowing provisions.

Acquisition of assets from a related party

Section 66 of the SISA provides a list of assets that can be acquired by an SMSF from a related party.  The assets that are common in an SMSF environment are:

  1. Business real property:  an interest in land and any built structure that is wholly and exclusively used in a business. It does not necessarily have to be a commercial property, it can be a residential property, as long as the property is wholly and exclusively used in a business at the time the SMSF acquired it.
  2. Listed securities:  shares, units, bonds, debentures, rights and options listed on a licensed market (e.g. Australian Stock Exchange), an approved stock exchange or an exempted market under the Corporations Act 2001.
  3. In-House asset:  an asset that meets the definition of an “in-house asset” under section 71 of the SISA and does not cause the SMSF to exceed the five per cent (5%) in-house asset limit.
  4. Tenants in common:  an SMSF is able to own a real property with a related party as tenants in common, as long as the property is not subject to a lease arrangement between the SMSF and a related party.
  5. Widely held unit trust: an SMSF is able to invest in a widely held trust that has fixed entitlements to income and capital of the trust and there are at least twenty (20) entities that are entitled to seventy-five per cent (75%) of the income or capital of the trust.
  6. Non-geared entities:  an SMSF is able to purchase units in a non-geared related unit trust or shares in a non-geared related company.

In-house asset provisions

An “in-house asset” under section 71 of the SISA is an asset of an SMSF that is a loan to, or an investment in, a related party of the SMSF, or an asset of the SMSF subject to a lease between a trustee of an SMSF and a related party of the SMSF.  A trustee can enter into an in-house asset transaction with a related party as long as the transaction does not exceed five per cent (5%) of the market value of the SMSF’s total assets.

A loan to a related party:  an SMSF can loan money to a related party (apart from members and relatives) as long as the money lent does not exceed more than five per cent (5%) of the value of the SMSF’s total assets.  Please note that an SMSF cannot loan money to a member of the SMSF or relatives of a member of the SMSF (even though members and relatives are included in the definition of a related party) as it is specifically prohibited under section 65 of the SISA.   Only loans made to related party such as a related company or a related trust are allowed.

An investment in a related party:  an SMSF can purchase unlisted shares in a related company or unlisted units in a related unit trust, provided the total value of shares or units do not exceed five per cent (5%) of the value of the SMSF’s total assets.

An asset of the SMSF leased to a related party:  an SMSF can lease an asset belonging to the SMSF to a related party provided the value of the asset is no more                             than five per cent (5%) of the value of the SMSF’s total assets.  

If an SMSF wishes to lease a residential property (non business property) to a related party, it can do so as long as the value of the residential property is no more than five per cent (5%) of the value of the SMSF’s total assets.

However, if an SMSF wishes to purchase a residential property owned by a related party, it can only do so if the property is leased to a related party at all times and the value of the property does not exceed five per cent (5%) of the value of the SMSF’s total assets.

SMSF leasing a business real property to a related party:  There is an exemption in the SISA that allows not only property that meets the definition of a “business real property” to be acquired by SMSFs from related parties, it can also be leased to related parties regardless of the value of the property.  That is, it does not matter that the business real property exceeds five per cent (5%) of the value of the SMSF’s total assets.

The key to entering into these types of transactions is to look at the end result first and assess, once an SMSF owns the asset, whether it would satisfy the definition of an in-house asset. If it does, then you need to determine whether the investment will put the level of in-house asset over five per cent (5%) of the value of the SMSF’s total assets.  If the value does not exceed five per cent (5%) then the SMSF can acquire the asset from the related party.

Example 1:  An SMSF has total assets value of $8 million.  It owns a one bedroom apartment valued at $390,000 and leases the apartment to one of the members of the SMSF.  As the apartment is less than five per cent (5%) of the value of the SMSF’s total assets, the leasing is allowed.

Example 2:  A member of an SMSF owned unlisted public company shares personally.  The member transferred the shares into his SMSF.  This is not allowed as only listed shares can be acquired by an SMSF from a member of the SMSF.  If, however, the company is a related party of the SMSF then the transfer of shares would be allowable if the value of the shares is less than five per cent (5%) of the total assets’ value in the SMSF.

Non-geared entities

If a trustee of an SMSF wishes to invest more than five per cent (5%) in a related party such as a related company or a related trust, they can do so as long as the related entity satisfies all of the conditions under regulations 13.22A to 13.22D of the Superannuation Industry (Supervision) Regulations 1994. These entities are often referred to as “non-geared entities”.

The conditions under regulations 13.22A to 13.22D are that the related entity (i.e. the related company or the related trust):

  • does not borrow (no borrowings or loans taken out);
  • does not have a charge over any of its assets (no mortgage or lien);
  • does not conduct a business;
  • conducts all transactions on an arm’s length basis;
  • does not invest in other entities (does not hold shares in listed or unlisted companies or units in a unit trust);
  • does not lend money to other entities (no loans to related parties or anyone else);
  • has not acquired an asset from a related party since 11 August 1999 other than business real property, and;
  • does not lease assets to related parties other than business real property.

As you can see the conditions listed in the above dot points are similar to the restrictions placed upon an SMSF.  So you may be wondering why an SMSF would invest in a related entity that has the same restrictions as an SMSF. 

You see prior to superannuation rules on “Instalment Warrants” introduced in 2007 and “Limited Recourse Borrowing Arrangements” introduced in 2010, SMSFs were not able to borrow money to acquire assets such as real property.  If an SMSF trustee wished to purchase a real property they needed to have all the money up front.  An SMSF could only acquire the real property using money already accumulated in the SMSF.

One of the ways an SMSF got around the borrowing restriction was to establish a related entity such as a related company or a related unit trust. Then the individual members of the SMSF would purchase shares/units in the related entity to raise capital.  The SMSF would then also invest in the related entity by purchasing shares/units in the entity.  Individual members in their private capacity joining forces with their SMSF allowed their SMSF to invest in larger value assets which it could not do on its own.

Therefore, the non-geared entity investment provides a more flexible way for an SMSF to purchase real property jointly with related parties.

Example:  John wishes to purchase a factory worth $500,000 in which he runs his business. His SMSF only has $300,000 accumulated cash and John does not want to enter into a limited recourse borrowing arrangement to acquire the factory.  John decides to use his family home worth $800,000 as collateral for a personal loan of $200,000.  He then establishes a unit trust and issues units to his SMSF and himself personally.  The unit trust then uses the money received from John ($200,000) and his SMSF ($300,000) to acquire the factory. 

Conclusion

The two common types of assets that can be acquired by an SMSF are listed shares and business real property.  Not only can a business real property be acquired from a related party it can also be leased to a related party.  If an SMSF is interested in acquiring any other type of asset from a related party you will need to consider the in-house asset provisions and the in-house asset limit of five per cent (5%) of the SMSF’s total assets’ value.

Gold and Platinum Members read on for examples of a “business real property” as well as common errors made by SMSF in acquiring assets from related parties.

Platinum Members, click here to view content

This article was prepared by Monica Rule.  Monica is the author of “The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English” (available from Law Central – click here)

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