ATO reports on the most common breaches by SMSFs
The ATO has released data which shows that one of the most common breaches by a SMSF is financial assistance to a member or a related party.
The legislation is clear, no one associated with your superannuation should get any financial assistance from the fund.
The superannuation fund must satisfy the sole purpose test. That is, to provide retirement benefits to the members or in the event of the member’s death, to the member’s dependants on death benefits to the members dependants.
Note that the term ‘related party’ is broad and includes;
- all members of your fund
- associates of fund members, which include
- the relatives of each member
- the business partners of each member
- any spouse or child of those business partners
- any company the member or their associates control or influence
- any trust the member or their associates control
- standard employer-sponsors, which are employers who contribute to your super fund for the benefit of a member, under an arrangement between the employer and a trustee of your fund
- associates of standard employer-sponsors, which include
- business partners and companies or trusts the employer controls (either alone or with their other associates)
- companies and trusts that control the employer
A relative of a member means any of the following;
- a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse
- a spouse of any individual specified above
Note also that the relevant SMSF tax ruling set out a number of transactions or arrangements the ATO would consider as providing financial assistance. They include;
- giving a gift of an SMSF asset to a member or relative of a member
- selling an SMSF asset for less than its market value to a member or relative of a member
- purchasing an asset for greater than its market value from a member or relative of a member
- acquiring services in excess of what the SMSF requires from a member or relative of a member
- paying an inflated price for services acquired from a member or relative of a member
- forgiving a debt owed to the SMSF by a member or relative of a member
- releasing a member or relative of a member from a financial obligation owed to the SMSF, including where the amount is not yet due and payable
- delaying recovery action for a debt owed to the SMSF by a member or relative of a member
- satisfying, or taking on, a financial obligation of a member or relative of a member
- giving a guarantee or an indemnity for the benefit of a member or relative of a member
- giving a security or charge over SMSF assets for the benefit of a member or relative of a member
Factors that assist in determining whether the law has been contravened would be;
- the arrangement or transaction exposes the SMSF to a credit risk, or exposes the SMSF to a financial risk, of a member or relative of a member
- the arrangement or transaction is on non-arm’s length terms that are favourable to a member or relative of a member
- the arrangement or transaction is not a usual or normal commercial arrangement in the context in which SMSFs operate
- the arrangement or transaction is not consistent with the investment strategy of the SMSF
- under the arrangement or transaction an amount is paid by the SMSF, and later repaid to the SMSF, in amounts or in a manner that may be equated with the repayment of a loan whether with or without an interest component
- the arrangement or transaction results in a diminution of the assets of the SMSF whether immediately or over a period of time
Should you have any queries in relation to SMSF breaches please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.