A related party of your SMSF defined in section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA) generally includes any other member of the SMSF, an employer that contributes to the fund by agreement ("standard employer-sponsor"), your relatives, partners and companies where the member or standard employer-sponsor controls or significantly influences the company.
Broadly, as an SMSF trustee you are not allowed to acquire assets from a related party. There are some important exceptions to these rules which can help to build your retirement savings. For an exhaustive listing please refer to section 66 of the SISA. The three main exceptions are for:
- Listed Securities;
- Certain "In-House Assets"; and
- Business Real Property
The main crux of this is that the transfers take place at market value. This term is defined in section 10 of the SISA and basically means the amount a willing buyer would pay in an arm's length transaction.
An SMSF trustee can acquire a listed security such as shares listed on the ASX from a related party, as long as the security is acquired at its market value. Also, please remember that if your SMSF acquires shares or other listed securities from a member of the SMSF you will need to pay income tax on any capital gain you make on selling those shares to your SMSF.
Your SMSF can invest up to 5% of your SMSF's value in "in-house assets". An in-house asset is a loan to or an investment in a related party of your SMSF or a lease arrangement with a related party or trust. For example an SMSF can acquire shares in the member's company as long as the value of those shares does not exceed 5% of the fund's total assets. As above please be aware of capital gains tax implications where the shares are already in existence and transferred to the fund. There are other exceptions relating to unit trusts and companies that I am happy to discuss further and you are welcome to contact me.
An SMSF is allowed to acquire business real property. This basically includes commercial or farming property at market value without contravening the SISA. Business real property is not defined by the SISA however it is dealt with in detail in "SMSFR 2009/1 - Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993". In summary business real property must be:
- Real Property " land as defined in subsection 66(1) of the SISA; and
- Must be wholly and exclusively in one or more businesses carried on by any person.
Business real property may be transferred into an SMSF tax-free with the use of the capital gains tax small business concessions.
However, specialist advice should be obtained from your tax adviser or financial planner before going ahead as the legislation relating to this is complex.