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Umesh Manek

Oct 31, 2022

Investments in Unrelated Trust

in SMSF Technical Forum

The superfund advanced loan to the unrelated related trust to the extent of 45% of the fund's assets and also invested 20% in Units of the Trust.

The Unit Trust is carrying out the development activities.

The superfund is not receiving the interest regularly as per the loan agreement. The loan is unsecured. The unaudited financials of the superfund is showing negative equity. The trustees advanced an additional loan to the Unit Trust to the extent of 10% without any interest. The reason for additional loan is to meet the cashflow requirements of the Unit Trust as agreed by all Unit Holders based on their holdings.

What will be our audit approach here, do we need to qualify part A only for the recoverability of loans or Part A and Part B for the valuation. Additionally, can loan advanced to unrelated trust without interest will attract arm's length breach?

3 answers0 replies

Comments (3)

THE AUDITORS INSTITUTE

Nov 02, 2022

Hi Umesh

Section 65 raised as just a section to be considered.

Section 109 will depend on the exact circumstances. If the loan (with no interest) has been made on a commercial basis to protect the Fund's investment then yes arguably would not be a breach of this section. You would need documentation to support this.

Yes agreed should consider SIS Reg 8.02B that requires:

"When preparing accounts and statements required by subsection 35B(1) of SISA, an asset must be valued at its market value".

Thanks

SMSF AAA