.png)
Hi there,
A unit trust has issued 60% of units to the SMSF and 40% to the member. The unit trust holds a commercial property and a bank account. During the year the member sold a portion of their units to the SMSF. A property valuation was obtained at the date of sale and the units valued at their net asset value.
The value of the units acquired from the member amount to approximately 10% of the SMSF's total assets at balance date.
Our concerns relate to the prohibition of acquiring unlisted securities under s66. Additionally, despite the transaction being performed at market value, the investment would exceed the 5% threshold for the in-house asset exception.
Could you please advise whether any further information/sections may be relevant in determining the appropriateness of the transaction. Also, are there any further issues worth considering?
Thank you,
Peter
Thanks SMSFAAA,
To confirm, the acquisition falls under s66(2A) Exception for certain in-house assets. Given it has been completed at MV and does not result in greater than 5% IHA (due to complying with 13.22C), no issues result from the transaction.
Hi Peter
Thanks. The question is can a SMSF purchase units in a unit trust from a related party.
My view is it can be done if the requirements of SIS regulation 13.22C are complied with.
As a starting point SIS section 66 states that a Fund cannot acquire assets from a related party unless the assets are:
i) listed shares, or
ii) business real property, or
iii) an asset the regulator has approved by legislation.
Under regulation 13.22C of SIS the units in the trust (or shares in a company) could be acquired from a related party if:
1) the trust does not lease an asset to a related party unless it is BRP, and
2) the trust does not have any borrowings, and
3) the trust assets do not include:
i) an interest in another entity, or
ii) a loan to another entity, or
iii) an asset that has a charge over it, or
iv) has an asset that was acquired from a related party (other than BRP).
That is a Fund can acquire from a related party units in a unit trust that owns property that is ungeared (if the SIS regulations are followed as noted above).
To support the above refer SMSFR 2010/1 - Self Managed Superannuation Funds: the application of subsection 66(1) of the Superannuation Industry (Supervision) Act 1993 to the acquisition of an asset by a self managed superannuation fund from a related party:
"Example 13 - acquisition of units in a related unit trust
74. Audrey is a member and a trustee of the Jones SMSF. Audrey holds 1,000 units in a unit trust that is a related trust of the SMSF and is not a widely held unit trust.
75. Audrey sells 200 units to the Jones SMSF. Market value consideration is paid for the units. As the units constitute investments in a related trust the units satisfy the requirement in subparagraph 66(2A)(a)(i).
76. A trustee or investment manager of the Jones SMSF can acquire the units without contravening subsection 66(1) if the other requirements of subsection 66(2A) are satisfied. The market value requirement in paragraph 66(2A)(b) is satisfied as the units are acquired for market value consideration. Therefore, provided the acquisition of the units does not cause the SMSF to exceed the 5% permitted level of in - house assets the requirement in paragraph 66(2A)(c) is also satisfied and the units can be purchased without contravening subsection 66(1)."
Thanks
SMSF AAA