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News & Commentary

Relative values 22 Nov 11

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The ATO – in its role as regulator of self-managed super – finds that related party dealings are often at the centre of serious breaches of superannuation law.

While certain related-party dealings are legally permitted, others are barred.

And senior superannuation specialists with the ATO typically urge fund trustees to take particular caution when considering conducting transactions between a fund and its members or their relatives.

A recently updated ATO publication – Setting Up a Self-Managed Super Fund: What You Need to Know – includes the issue of related-party transactions.

Apart from limited exceptions, the booklet warns that funds cannot acquire non-cash assets from members, their families and partners, or their companies and trusts. The main exceptions to the rule are business real estate and listed securities.

A fund cannot, for instance, acquire a residential property from a member – even as a non-cash contribution.

And SMSFs are barred from making loans or providing other financial assistance to members or their relatives.

Further, a SMSF is generally prohibited under the in-house asset rules in superannuation law from leasing or having investments with related parties involving assets that are worth more than five per cent of the fund’s total market value. In effect, this means that few funds (except perhaps a few very large ones) could not lease, for example, a fund-owned residential property to a member. (Again, business real estate is among the exceptions.)

Superannuation laws and investment markets are complicated enough without the added complexity and potential legal difficulties arising from certain related-party transactions.

* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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