SMSFs warned on related party hurdles affecting estate transactions
SMSFs managing related party transactions involving estates will require greater care, especially when dealing with increased complexity that can arise from super regulations, according to a technical specialist.
In a recent technical update, Heffron technical specialist Annie Dawson said that the superannuation law has very specific definitions about what makes a person or an entity a related party of a super fund.
She noted depending upon the number of entities and people involved, it can become complex for the SMSF.
"Generally, an estate will be a ‘related party’ of an SMSF if one of the executors of the estate is a member of the SMSF or a relative of a member, or a member of the SMSF and/or one or more of their relatives 'controls' the estate," Ms Dawson said in the blog.
"People who are regarded as a ‘relative’ of a member of an SMSF is extensive. In this context, a relative includes a member’s parent, grandparent, brother, sister, aunt, uncle, niece, nephew, lineal descendent or adopted child, the member’s spouse, or the spouse of anyone listed above."
"Whether a member and/or their relatives could be regarded as having 'control' of an estate will depend upon the circumstances."
If the estate is a related party of the SMSF, Ms Dawson noted the super fund will be limited to purchasing certain types of assets including ASX-listed shares, commercial property (if certain conditions are met) and units in trusts that are “widely held” and this will usually include managed funds and certain unlisted property trusts with many investors.
Importantly, an SMSF will generally not be permitted to acquire other types of investments, such as residential property or shares in a privately held company.
"There are a few other types of investments permitted, such as 'in-house assets' such as shares in a controlled entity, but these are relatively uncommon and due to limits on the value of in-house assets an SMSF is permitted to acquire, is often impractical," she explained.
"As with all investments decisions, trustees of an SMSF must comply with the sole purpose test, for example, the sole reason they are purchasing the investment is for retirement purposes only and not for any other reason, such as, helping provide the estate with liquidity or to snaffle that beach house they’d always loved as a child.
"Trustees also need to ensure the investment is purchased at market value (and market valuations to evidence this are obtained). The acquisition of the investment will also need to be in accordance with the fund’s investment strategy."
Tony Zhang
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.
