All You Need to Know About a Self-Managed Super Fund
In a nutshell, self-managed superannuation funds, also known as SMSFs, are a means to financially plan for your retirement. Here, we uncover everything you need to know to get a clear idea about a self-managed super fund. SMSFs provide flexibility and control over your retirement savings, but they are subject to strict regulations, including the in-house asset rules. These rules limit exposure to investments in related parties to protect members' benefits from undue risk.
Understanding In-House Asset Rules for SMSFs
What is an in-house asset: An in-house asset is any of the following: A loan to or an investment in a related party of the fund. An investment in a related trust. An asset of the SMSF that is leased to a related party.
To comply with the rules, SMSFs can hold in-house assets but must limit their value to no more than 5% of the market value of the funds total assets. Trustees must take steps to reduce any breach of this limit by the end of the financial year.
Exceptions to InHouse Asset Rules
Certain assets are excluded from the in-house asset rules, including: Business real property leased to a related party. Investments in 13.22C unit trusts or companies, provided they meet specific requirements. Assets acquired before 11th August 1999 under transitional rules.
Managing Breaches of the Limit
Action Plan: If an SMSFs inhouse assets exceed the limit due to changes in asset values, trustees must prepare and implement a written plan to rectify the breach before the end of the next financial year.
Disposal of Assets: Trustees may need to dispose of one or more in-house assets to comply with the limit.
ATO Discretion: The ATO may waive penalties in cases where economic conditions prevent timely compliance, provided trustees demonstrate reasonable efforts to rectify the breach.
Key Definitions
Related Party: A member of the SMSF, a standard employer sponsor, or their associates e.g., relatives, business partners. Related Trust: A trust controlled by SMSF members or their associates. Lease Arrangements: Leasing fundowned property to a related party counts as an in-house asset unless it qualifies as business real property.
Anti-Avoidance Measures
The ATO enforces antiavoidance provisions to prevent schemes that bypass in-house asset rules. Breaches can lead to administrative penalties, loss of concessional tax treatment, and civil or criminal penalties for trustees.
Case Studies
Loan to a Related Party:
An SMSF lends money to a family trust controlled by its members. The loan counts as an in-house asset.
Business Real Property Lease:
An SMSF leases a commercial property to a related party at market rates. This is exempt from the in-house asset rules.
Pre-1999 Investments:
Investments held before 11 August 1999 are exempt, provided no additional investments are made after this date.
