Technical expert flags traps with Part 8 associates
While identifying related parties of a fund is vital for SMSFs, this can sometimes be difficult, particularly with Part 8 associates where companies and trusts are involved, SMSF Alliance explained.
In an online article, SMSF Alliance principal David Busoli explained that the SIS Act pays special attention to the inherent conflict of interest that exists in all SMSFs due to the trustees being the members and vice versa.
“This limits the financial dealings that the fund can have with related parties so identifying who these are is vital. SIS sec 10(1) defines these as a member, standard employer sponsor of the fund or Part 8 associate but identifying these is not always clear,” he cautioned.
While a fund member may be obvious, said Mr Busoli, less obvious is a standard employer-sponsor of the fund.
“This type of employer sponsor is noted in the trust deed. It would be highly unlikely for them to exist now but best to check. Less obvious still are the Part 8 associates of a member,” he said.
Part 8 associates, he said, can be a relative of a member, including a “parent, grandparent, brother, sister, uncle, aunt, nephew, niece, linear descendant or adopted child of the member or their spouse of the aforementioned”. It does not extend to cousins, however.
Part 8 associates can also be other members of the SMSF, partners of the member and their spouses and children and the trustee of a trust the member controls.
It can also be a company sufficiently influenced by, or in which majority voting interest is held by the member and their Part 8 associates, either individually or together, he noted.
Mr Busoli explained that a member of the fund would be deemed to control a trust where the member and/or their Part 8 associates are:
- Entitled to a fixed entitlement of more than 50 per cent of the capital of the trust
- Entitled to a fixed entitlement of more than 50 per cent of the income of the trust
- Able or accustomed (formally or informally) to direct the trustees to act in accordance with their directions, or
- Able to appoint or remove trustees
“A company will be deemed to be controlled by a member where the directors are accustomed or under an obligation to act under the instructions of the member and/ or their Part 8 associates or the member and/or their Part 8 associates have more than 50 per cent of the voting rights,” he added.
Related-party status can, therefore, often be unclear, said Mr Busoli, particularly where companies and trusts are concerned.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
