Super rules breached for investment in related entities
In a recent decision, the Administrative Appeals Tribunal affirmed a non-compliance notice issued to a self-managed superannuation fund (SMSF). The Commissioner of Taxation had issued the notice for regulatory breaches in respect of "book entry" loans made via a related party trust. Broadly, the case concerned members of an SMSF who were also directors of the corporate trustee of the fund and other related trusts, including one which operated a family business. The SMSF had invested in a related unit trust which in turn had financial dealings with the family business. The Tribunal confirmed the non-compliance notice after finding there were breaches of the "sole purpose test" and "in-house asset rules" under the superannuation law.
TIP: Broadly, the "sole purpose test" seeks to ensure that superannuation money is set aside and only applied to fund members' benefits in retirement, whereas the "in-house asset rules" generally restrict an SMSF from having more than 5% of its total assets invested in "in-house assets". An "in-house asset" can include a loan to, or investment in, a "related party" of the fund. The rules can be complex, so it is important for trustees to carefully consider their investments to avoid falling foul of the rules.
