ATO ID 2014/23: Self Managed Superannuation Fund - Loan to a property trust
Date of decision: 15 July 2014
Business line: Superannuation

Issue
Will a loan from a Self Managed Superannuation Fund (SMSF) to a Property Trust be treated as an in-house asset?

Decision
A loan from a SMSF to a Property Trust will not be treated as an in-house asset if the Property Trust is neither a related trust (a trust controlled by a member or a standard employer sponsor of the SMSF) nor a related party of the SMSF.

Facts
A SMSF made a loan to a Property Trust. A related party of the SMSF (a Unit Trust) holds less than 10% of the issued units in the Property Trust. The Unit Trust has as members of the class of general beneficiaries, members of the SMSF. The loan was made under a commercial loan agreement.

Reasons for decision
Summary: Subsection 65(1) of the Superannuation Industry (Supervision) Act 1993 (SISA) states that the trustee or an investment manager of a regulated superannuation fund must not lend money of the fund to a member or a relative of a member of the fund. A 'relative', as defined in subsection 10(1) of the SISA, includes only natural persons. As the Property Trust is not a natural person, subsection 65(1) of the SISA does not prohibit the SMSF from making the loan. The meaning of an in-house asset is defined by subsection 71(1) of the SISA to include 'a loan to, ... a related party of the fund, ...' A related party of the superannuation fund, as defined in subsection 10(1) of the SISA, is a member of the fund, a standard employer sponsor of the fund, or a Part 8 associate of either of those entities. The Property Trust is neither a member of the SMSF nor a standard employer sponsor of the SMSF. However, the Property Trust may be a Part 8 associate of a member of the SMSF. The relationship between the parties involved requires analysis. In particular, it needs to be determined if the trustees of the Property Trust or any of the other unit holders of the Property Trust are Part 8 associates of the individual members of the SMSF. Part 8 associates of individuals are listed in section 70B of the SISA. The relevant Part 8 associates will be any relative of the individual members of the SMSF, other fund members and trustees of trusts that are controlled by the individual members of the SMSF. According to subsection 70E(2) of the SISA, a trust is controlled by an entity, for the purposes of section 70B of the SISA if: A group is defined in subsection 70E(3) of the SISA to mean: The Property Trust to whom the loan was made is not a Part 8 associate of the SMSF because the SMSF and its related parties hold less than 10% unit holdings in the Property Trust and have no other control over the Property Trust. Accordingly the loan has not been made to a related party and therefore does not meet the definition of an in-house asset. The SMSF would be able to lend the money to the Property Trust provided this investment is in line with the investment strategy of the SMSF.

Legislative references: Superannuation Industry (Supervision) Act 1993 subsection 10(1) subsection 65(1) section 70B section 70E subsection 70E(2) subsection 70E(3) subsection 71(1)
Related ATO interpretative decisions: ATO ID 2002/697 | is replaced by this decision.
Subject references: self managed superannuation funds SMSF investments SMSF loans SMSF part 8 associate SMSF related parties superannuation fund in house assets