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Just reviewing an SMSF that has invested in a related trust with the SMSF holding 87.43% of the units and the member holds the balance. Under s13.22c rules, the trust can not have any loans. However there is a loan from the member to the trust. The property in this trust is a commercial property which is leased to a third party. Is this loan acceptable if the property is commercial?
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Hi Neetu
The rules re SIS Regulation 13.22C re loans will be the same whether the property is commercial or not commercial.
SIS Regulation 13.22C(e) requires that the unit trust does not have any "borrowings".
As a result if the loan from the member to the trust is considered a borrowing you will not have met the SIS Regulation 13.22C requirements (that means the asset will be an in-house asset).
I note that SIS Regulation 13.22C(f)(ii) does refer to loans in that is states that the assets of the trust must not include a "loan to another entity". In your example the loan is a liability in the Trust's accounts so my view is you need to focus on making sure the Trust does not have any borrowings as referred to above.
Thanks
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