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Peter

Aug 09, 2023

in SMSF Technical Forum

A SMSF has a investment in a unit trust. The ownership of units in the unit trust are as follows:

24% to SMSF A
26% to Family Trust A
24% to SMSF B
26% to Family Trust B

Neither SMSF (including related parties) have control of the unit trust based on their units. Neither SMSF can direct the operations of the unit trust through any provision of the trust deed.

However, a member from SMSF A and a member of SMSF B both own shares in a company which operates a business, Company C. Each member's ownership of Company C is 50%.

Could I please have your help to clarify the rules around partners being treated as Part 8 associates?

My concern is whether the definition of 'partner' is interpretted such that the two members who jointly run Company C are Part 8 associates of one another. Alternatively, the term may take a more literal sense being partners within a partnership structre.

If the members of each SMSF are consider Part 8 associates, it appears that each SMSF would control the unit trust requiring them to comply with the rules listed in regulation 13.22C.

Your assistance is much appreciated.

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Aug 09, 2023

Yes the related party rules are complicated re directors / partners.

Part 8 associates per SIS include as you have noted a "partner". Partners of a partnership are Part 8 associates. To work out if there is a partnership you need to refer to the definition of "partnership" as defined in the ITAA 1997.

A partnership is defined in ITAA 1997 as:

""partnership" means:

(a) an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or * statutory income jointly; or

(b) a limited partnership."

A partnership for SIS is viewed in the literal sense as you note, that being partners in a partnership. Directors of a business are normally not treated as being in a Partnership.

This has been an ongoing area of confusion for trustees and auditors.

As the part 8 associate rules are complicated if any doubt legal advice should be obtained by the Trustees that they have complied with the in-house asset rules.

If any other forum members have a view please let the forum know.

Thanks