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In this instance the fund has made additional payments into a related party unit trust, which was grandfathered, after the transitional period of 30th June 2009. This additional investment is more than 5% of the fund assets. As such, is the in-house asset the whole of the investment or is it just the amount of the post June 2009 investment? Example, Value of related party unit trust $500,000 (grandfathered). Investment into the unit trust in 2012 $100,000. Is the value of the in-house asset $600,000 or $100,000? In some of my readings it states that the whole of the investment is no longer grandfathered and has become an in-house asset and being that it is over 5% of fund assets the whole of the investment needs to be disposed of. Other reading suggest that it is just the additional investment and the additional investment (pre August 1999) is still grandfathered?
Would appreciate your take on this.
Hi Debbie
The in-house asset should be just the post 30 June 2009 investment.
The transitional rules for pre 11 August 1999 investments and loans are found at section 71A to 71E of SIS.
It is section 71A(1) of SIS that states that an investment made pre 11 August 1999 are not in-house assets if they were not in-house assets under the previous rules. That is the pre 11 August 1999 investments are grandfathered as not being in-house assets. Further transitional rules allowed certain further investments after 11 August 1999 and pre 30 June 2009 to be excluded from being in-house assets.
The view that in-house asset should be just the post 30 June 2009 investment is supported by the ATO at:
https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/in-detail/smsf-resources/smsf-technical/transitional-rules-and-in-house-assets
The ATO states that:
"If you continued to reinvest earnings or make additional investments or loans after 30 June 2009 on behalf of your SMSF, the additional investments or loans would be in-house assets that count towards the 5% limit."
Further it is section 71A(3) of SIS that provides that investments made after 30 June 2009 will be excluded from being in-house assets by providing that the calculation of in-house assets is reduced to only reflect the payments made after 30 June 2009 as being in-house assets.
Section 71A(3) of SIS has the calculation to use for in-house assets as being:
"For the purposes of working out the formula component Number of whole dollars in value of in - house assets of the fund under section 75 at the post - test time, the value of the share or unit at the post - test time is taken to be the number of whole dollars in the amount worked out as follows:
where:
"excess amount" means the total of the amounts that, as at the post - test time, had been paid after 30 June 2009 on the share or unit to the issuer of the share or unit.
"market value of share or unit" means the market value of the share or unit as at the post - test time.
"total amount" means the total of the amounts that, as at the post - test time had been paid (whether before or after 30 June 2009) on the share or unit to the issuer of the share or unit."
Thanks
The Auditors Institute