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Im seeking your opinion and input on my thinking in relation to Unit Trusts and what constitutes it being a related party of an SMSF or not. From my understanding, under SIS s.70E(2) an smsf controls a unit trust if a) it holds a fixed entitlement of more than 50%, or b) the trustees are sufficiently influenced by the smsf (in my words) or c) the smsf is able to appoint or remove the trustees or majority of trustees of the unit trust.
But under SIS s70E(2) it does not anywhere state anything about the number of trustees (or directors of the corporate trustee) or whether they are related to the trustees of the smsf. My question is if smsf A holds 50% of the units of a unit trust, and smsf B (non related party) holds the other 50% of the unit trust, (and i know that units held in these structures awards voting rights), but the members of SMSF A are also the ONLY trustees (or directors of the corp trustee) of the unit trust - does the unit trust then become a related party despite the SMSF only holding 50% of the total units issued.
Is control established by the number and relationship of trustees of the unit trust to the smsf or is decision making power fully given to unit holders instead and trustees are not the factor in deciding whether or not the unit trust becomes a related party? Going to SISA s.70E(2)(c) this almost wants to address what im toying with but doesn't quite get there.
Hi Mark
A great reference for in-house asset / related party queries is - SMSFR 2009/4 "Self Managed Superannuation Funds: the meaning of 'asset', 'loan', 'investment in', 'lease' and 'lease arrangement' in the definition of an 'in-house asset' in the Superannuation Industry (Supervision) Act 1993".
It states:
"Definition of a 'related trust'
156. A 'related trust' is defined in subsection 10(1) as:
157. Control of a trust is defined in subsection 70E(2). An entity is taken to control a trust if:
•a group in relation to the entity has a fixed entitlement to more than 50% of the capital or income of the trust; or
•the trustee of the trust, or a majority of the trustees of the trust, is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of a group in relation to the entity (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts); or
•a group in relation to the entity is able to remove or appoint the trustee, or a majority of the trustees, of the trust."
Yes if the SMSF only owns 50% of the units in a trust but the members of the SMSF are the only trustees of that trust then that trust is a related party. The trustees of the SMSF control the trust by being the only trustees of the trustee so the trust is a related party.
Thanks
SMSF AAA