Acquiring assets from related parties

Founder and Publisher of the Switzer Report
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As part of the government’s policy to protect the integrity of the super system, the super laws prohibit you from intentionally acquiring assets from related parties of your SMSF. They also prohibit related parties from selling most assets to the fund or from contributing assets other than money.

For example, if Peter Jones is a trustee and member of the Jones Family Superannuation Fund and Peter owns a holiday house, the Jones Family Superannuation Fund can’t purchase the holiday house from Peter. This would be a breach of the act. The term ‘acquire’ means more than just purchases and includes any means by which the SMSF becomes the legal or equitable owner of the asset.

Like many parts of the act, there are, however, a number of permitted exceptions.

Who’s a related party?

The definition of a ‘related party’ is very broad and exhaustive, and covers:

  • a member of the fund;
  • a standard employer sponsor of the fund; and
  • an associate of either a member or standard employer sponsor of the fund.

Associates include:

  • any relative of the member (spouse, parent, grandparent, uncle, aunt, nephew, niece, son, daughter, adopted child, or spouse of any relative in this list);
  • the other members of the fund;
  • a business partner of the individual or a partnership in which the individual is a member, and in the case of the former, the spouse or child of that partner;
  • a trustee of a trust controlled by the individual;
  • a company sufficiently influenced by, or in which a majority voting interest is held by the individual and/or the individual’s associates.

In the case of a company, exerting ‘sufficient influence’ means that the company is accustomed or under formal or informal obligation, or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the individual.

For a trust, control is defined to be holding a fixed entitlement to more than 50% of the capital or income of the trust, exerting sufficient influence (as per a company), or the ability to remove or appoint the trustee, or a majority of the trustees, of the trust. Like companies, the individual’s associates are grouped in relation to the control test.

What are the permitted exceptions?

The following assets can be acquired by an SMSF from a related party:

  • listed securities, provided they are acquired at market value. Listed securities are shares, bonds, debentures, rights or options listed for quotation on the ASX or on certain approved international stock exchanges;
  • business real property – this is property used wholly and exclusively in one or more businesses, and does not need to be the trustee’s business. Generally, a single residential rental property will not qualify as  business real property;
  • a deposit with an authorised deposit taking institution;
  • a life insurance policy issued by a life insurance company (other than a policy acquired from a member of the fund or a relative of a member);
  • an investment in a widely held unit trust (eg. a managed fund); and
  • an investment in an in-house asset of the fund, provided that acquisition does not cause the SMSF to breach the 5% cap on the value of in-house assets.

In the cases above, the acquisition must be at market value (in the case of listed investments) or on an ‘arm’s length’ basis (that is, on commercial terms), and be undertaken as part of a properly formulated and documented investment strategy. If the acquisition is at “no cost’ as an ‘in-specie’ contribution, then the asset should be recorded at the market value as at the date of transfer.

Anti-avoidance provision

The super laws contain an ‘anti-avoidance provision’ that prevents a person from intentionally entering into or carrying out a scheme that helps them avoid the law. You can find more information in Superannuation Circular No. II.D.3 available at www.apra.gov.au.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.