Related party remuneration can be achieved
An exception to Section 17 of the SIS Act can allow SMSFs to remunerate trustees/directors in a related-party building arrangement, says a leading legal professional.
In a recent webinar for DBA Lawyers, Bryce Figot said that section 17A of the SIS Act states that trustees/directors cannot be remunerated for any duties or services performed by the trustee in relation to the fund.
However, section 17B outlines certain circumstances that provide an exception to this rule.
“Generally speaking, if you’ve got a related party builder, who is providing valuable services to the fund, you’d want to remunerate them and hopefully, you can remunerate them under Section 17 B,” he said.
Section 17B of the SIS Act states that the builder:
- Performs the duties or services other than in the capacity of trustee
- Is appropriately qualified, and holds all necessary licences, to perform the duties or service
- Performs the duties or services in the ordinary course of a business, carried on by the trustee, of performing similar duties or services for the public
- The remuneration is arm’s length
“So, what happens when for whatever reason you don’t tick all the Section 17B boxes and you can’t remunerate them under Section 17B?” Mr Figot said.
“Let’s say I’m a builder. My wife and I are trustees of the super fund. We really want to remunerate me for my building work but although I run a building business, I don’t offer it to the public and only build my own private projects.
“How could I be remunerated yet not fall foul of section 17A if I can’t rely on the section 17B exception?”
Mr Figot said the husband could resign as a trustee and that, although the couple are still both members of the fund, the wife would remain as the sole trustee (and she is representing her husband under his enduring power of attorney), which means the husband could be remunerated for the building work.
But there can still be challenges in proving an arm’s length rate for the building services, he said.
“Entering into SMSF property development means entering into a difficult, regulatory environment and you’re going to have to work to get your tax concessions,” he said.
He said there are ways to “unpick” how much of the labour component of a build can be contributed by each party involved in the development by looking at the cost of materials as well as engaging a quantity surveyor to reverse engineer a builder’s quote.
