Media release 2009/51
The Administrative Appeals Tribunal (AAT) has upheld the Tax Office’s decision to issue a notice of non-compliance to a self-managed super fund (SMSF) found to have contravened the in-house asset rules.
The AAT concluded that the seriousness of the breach and the time taken by the fund’s trustees to correct it weighed most heavily on its decision.
Once a fund is found to be non-compliant it loses access to concessional tax treatment and its taxable income is assessed at the top marginal rate.
In the year a previously complying fund becomes non complying its income includes the assets of the fund less any undeducted contributions, thereby recouping all previously allowed tax concessions.
Tax Commissioner Michael D’Ascenzo said the decision is a reminder to trustees to act on any breaches.
“The sole purpose of an SMSF is to provide benefits for members in retirement and should not be used to invest in related parties above the five per cent in-house asset limit,” Mr D’Ascenzo said.
“I’d like to take the opportunity to remind trustees of the seriousness of such a breach, and of the need for trustees to act urgently to remedy the situation.
“The Tax Office has increased its focus on ensuring high levels of compliance among trustees given the important role of SMSFs and their access to concessional tax treatment.”
The “JNQV” case involved the trustees of an SMSF who breached in-house asset rules after their fund made loans to a related company to support its business activities.
The company failed to repay the loan until four years later which was two years after the fund’s auditors reported the breach to the trustees and the Tax Office.
The repayment was also long after Tax Office contact provided a further opportunity to appropriately rectify matters.
The loans were much greater than the permitted level of in-house assets of five per cent.
The Tax Office has a range of information and services available to assist trustees of SMSFs meet their obligations. Visit www.ato.gov.au for more information.
Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
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{ 1 comment… read it below or add one }
Love your site – very useful information. I am in Melbourne, so it is probably not practical to use your services.
Regarding in-house assets. Can an SMSF make a loan to an individual trustee or a director of a corporate trustee if the loan is less than 5% of the assets of the fund?
My confusion stems from my (flawed?) understanding that there are conflicting rules a) in-house assets are OK if less than 5% of fund assets and b) under no circumstances are SMSF’s allowed to make a loan to members, trustees or related parties.
In my case the loan would be to a non-member, i.e., it is a single member fund and the loan would be to the non-member relative (father) trustee and/or director. I have 2 SMSFs: one with individual trustees and one with a corporate trustee.
Cheers,
Graeme