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Is Unit Trust an in-house asset of SMSF

Discussion in 'Accounting, Tax & Legal' started by ecosse, 14th Dec, 2013.

  1. ecosse

    ecosse Member

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    30th Mar, 2010
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    Location:
    Sydney
    Hi,
    My new smsf auditor has deemed that my Unit Trust is an in-house asset of my smsf. My previous auditor never mentioned this problem, and I am now trying to quickly educate myself about the subtleties of in-house asset definition. If the trust is indeed an in-house asset (more than 5% of smsf equity), then I will need to sell or transfer the properties - triggering all sorts of capital gains and stamp duty ugliness!

    My smsf owns ALL of the units in my unit trust, and under the trust deed is entitled to receive ALL of the income and capital of the trust - no exceptions. Spouse and I are trustees of the trust. The trust has no gearing. The trust owns 3 residential properties which are (and always have been) rented to tenants through rental agencies. The properties were not purchased from related parties, and the income generation and capital value of the trust is a closed loop which can only flow back to the smsf and nowhere else.

    I understand the intent of the in-house asset rules, and the above arrangement does not appear to breach that intent.

    I wonder if anyone with detailed knowledge in this area would care to comment on whether and why this trust is or isn't classed as an in-house asset.

    Many thanks
     
  2. redwood

    redwood Member

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    9th Nov, 2013
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    Location:
    Melbourne
    Can I ask, are you aware of the audit procedures that the previous auditor performed to obtain comfort over the investment in the unit trust. i.e. did the auditor verify the existence of the assets and how did they get comfortable with the valuation of the investment in the unit trust....knowing this contained 3 properties owned by a relating party? assume residential properties.
     
  3. Terryw

    Terryw Well-Known Member

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    Look at reg 13.22C of the SIS regulations. There is an exemption for a SMSF holding units in certain fixed trusts - many rules and not all unit trusts would qualify.
     
  4. ecosse

    ecosse Member

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    30th Mar, 2010
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    Thanks for the valuable pointer Terry. Unfortunately it didn't do the trick because the trust previously had a property loan. This is no longer in existence, but the fact that it once existed caused our new auditor to serve us with a non-comply. :eek:
     
  5. Terryw

    Terryw Well-Known Member

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    ecosse,
    have a look at the legislation:
    SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 - REG 13.22C Assets acquired after commencement of Division 13.3A (Act s 71)

    subsection (e):
     
  6. ecosse

    ecosse Member

    Joined:
    30th Mar, 2010
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    6
    Location:
    Sydney
    Hi Terry,
    Some assets were in existence before the Division, and the loan was created after the Division. so it all gets a bit complicated. We're just going to reduce the holding under 5% and cop the additional costs.

    Redwood,
    Sorry, not aware of the previous auditor's procedures - but they had access to all our entities, so this shouldn't really have happened imo.