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Areas of concern for SMSF trustees

If you are the trustee of one of the approximately 577,000 SMSFs in Australia at the moment, there are some areas the ATO wants you to pay particular attention to including the sole-purpose test and the in-house asset rules. If it all seems a bit confusing or you’re unsure about anything, we can help you get it right.

Are you the trustee of one of the approximately 577,000 SMSFs in Australia at the moment? As the SMSF sector continues to grow and the number of funds continue to increase, the workload of the ATO as the regulator increases. Instead of the rigid enforcement of the rules, the ATO has taken an educational and early engagement approach with the SMSF sector. As a part of that early engagement, it has shared some insights into the common areas that cause concern in a bid to make trustees more aware.

The sole-purpose test

The test requires that the SMSF maintains investments for the sole purpose of providing for retirement and death benefits to members. If you’re using SMSF assets to provide residential accommodation to a member or a relative, the ATO considers that to be a contravention of the sole-purpose test. This is the case even if the fund receives arm’s length rent.

In-house asset rules

The rule requires that an SMSF’s in-house assets cannot exceed 5% of their total assets. Put simply, an in-house asset includes:

  • a loan to, or investment in, a related party of the fund;
  • an investment in a related trust of the fund;
  • an asset of the fund subject to a lease or lease arrangement with a related party of the fund.

The most common regulatory breach seen by the ATO in relation to in-house assets relate to the lending money or assets to members or relatives of members of the SMSF.

Need some support?

Whilst doing everything yourself saves you money, the decisions you make in your SMSF is especially important for your future and retirement. If you’re unsure about a new investment, considering making additional contributions, or looking to start paying benefits from your fund, we can help you get it right. 

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