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A fund has acquired a property from a related discretionary trust. The asset is business real property and had a market value of $2.2m at the date of transfer. $1m was paid by the fund and $1.2m considered non-concessional contributions (allocated $300k to each of the 4 members) as a result of an in specie transfer. The trustees have provided a contract of sale detailing a sale price of $1m.
Should the contract of sale reflect the entire market value of the property despite only $1m being paid?
What are the implications of transferring an asset from a related discretionary trust? and what audit issues may result?
Further information was provided by the trustees which resolved the queries regarding the property acquisition.
The acquisition occurred in 2 events. The trust distributed 12/22 shares in the property equally among the beneficiaries (3 shares each) which were than contributed in-specie. The fund then purchased the remaining 10/22 shares in the property from the trust. This was shown through the contract of sale.
Hi Brian
Yes the non-concessional contributions would be based on the market value of the asset being transferred to the Fund after allowing for any money transferred in relation to the purchase / contribution of the property.
Thanks
SMSF AAA
Hi Peter
As a starting point the Fund can acquire the asset from the Trust as it is business real property and is allowed under section 66 of SIS.
The SIS audit issues are primarily:
1) Is the property business real property?
2) Has it been acquired at market value?
3) Has the asset been transferred to the trustee of the Fund?
4) Have the acceptance of contribution rules been met?
The contract of sale / transfer of the property should have been reviewed by a lawyer as the stamp duty implications are complicated and do differ in different states. In my view if the contract of sale refers to the whole property being sold for $1,000,000 it has not been correctly prepared. What legal advice was prepared in relation to the transaction?
My other concern would be in relation to the non-concessional contributions having possibly been made from the trust. What process has occurred & has a legal overview been performed? Has the trust in-specie transferred a share of the property to the individuals and then have the members done an in-specie transfer of the property to the Fund?
Given the complications noted above I would need further details to comment further.
Thanks
SMSF AAA