| Superannuation Funds - Managing investments 3 |
| INVESTMENTS TO BE MADE AND MAINTAINED ON AN 'ARMS LENGTH' BASIS. |
INVESTMENTS TO BE MADE AND MAINTAINED ON AN 'ARMS LENGTH' BASIS:
Investments by SMSFs must be made and maintained on a strict commercial basis. The purchase and sale price of fund assets should always reflect a true market value for the asset. Income from assets held by the fund should always reflect a true market rate of return. Recent changes to the Investment Rules, The investment rules outlined in this section incorporate recent amendments which received Royal Assent on 23 December 1999. The main changes from the previous rules are:
1. previously only acquisitions of assets from members and relatives were restricted, now acquisitions from the broader category of 'related parties' are restricted; ,
2. previously only investments in certain employers and their associates were considered in-house assets and subject to the 5% restrictions, now investments in the broader category of related parties' (which includes related trusts) are restricted to 5%;
3. previously assets being leased to related parties were not considered in-house assets, now they are and are thus generally restricted to the 5% limit; and
4. previously the exemption allowing the acquisition of business real property only applied if property so acquired was less than 40% of fund assets, now the percentage is effectively 100%.
These changes apply from 11 August 1999, not 12 May 1998 as previously proposed. An exception is the change to the acquisition of business real property which will apply from 12 May 1998.
TRANSITIONAL RULES:
A number of transitional measures apply to the introduction of the new rules. These are as follows.
Existing Investments at 11 August 1999.
1. Fund investments and leases in place at 11 August 1999, are not subject to the new rules. That is, they are not counted as in-house assets (unless they were already in house assets under the old rules).
2. A fund cannot, however, make additional investments in such an arrangement ( eg. purchase additional units in an existing related trust investment) unless specifically allowed under the transitional rules discussed below.
Investments made between 11 August 1999 and 23 December 1999
1. Investments and leases with related parties made between 11 August 1999 and 23 December 1999 will have until July 2001 to comply with the new rules. That is, they are not counted as in house assets until July 2001.
Certain specified investments after 11 August 1999
Certain specified investments made after 11 August 1999 will also not be subject to the changes. Funds can choose to take advantage of one (but not both) of the following exemptions:
2. If a fund had an investment in a related entity ( eg. a trust) at 11 August 1999 it can make additional investments in that trust after that date (provided the investments do not exceed the level of the debt in the trust at that date and are made no later than 30 June 2009); OR
3. If a fund had an investment in a related entity ( eg. a trust) at 11 August 1999, it can, after that date but not later than 30 June 2009, reinvest earnings from that trust back into the trust. Also, if a fund had partly paid shares or units at 11 August 1999 it may make additional payments on those shares or units after that date (provided they are made no later than 30 June 2009).
If in any doubt the validity of an investment decision trustees should seek professional advice or contact the ATO for assistance.
Taken from an ATO publication titled 'A DO IT YOURSELF GUIDE FOR TRUSTEES RUNNING A SELF MANAGED SUPERANNUATION FUND'
15th-May-2001 |
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