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Oct 14, 2022

Unpaid Distribution

in SMSF Technical Forum

Hi,

Have a fund with an investment in a related unit trust. The related unit trust owes distributions to the fund totalling 10% of the funds assets. These distributions have been accumulating as unpaid since at least the 2018FY, through to and including 2021FY.

Its my understanding these unpaid distributions are an in house asset among other issues.

If the unit trust repays distributions to get the value of the IHA under 5%, does that satisfy the SIS requirements of getting the value of IHA under 5% or is the distribution from the UT in effect tainted and needs to be repaid fully? Does the fund need to dispose of the assets in the UT as well?

2 answers0 replies

Comments (2)

Oct 14, 2022

sorry wanted to add - this was an investment in a pre1999 unit trust as well.

THE AUDITORS INSTITUTE

Oct 16, 2022

Replying to

Hi T

As it is a pre 11 August 1999 then my view is that normally accumulated un paid trust distributions would be considered a loan to a related party and be treated as an "in-house" asset. Further the "loan" (accumulated unpaid trust distributions) would only be need to repaid so they are under 5% of the Fund's assets.

The Fund would not need to dispose of the units in the unit trust as the pre 11 August 1999 investments / units are protected.

The ATO addresses the issue you have raised at:

https://www.ato.gov.au/Super/Self-managed-super-funds/In-detail/SMSF-resources/SMSF-technical/Transitional-rules-and-in-house-assets/

The ATO states:

"Unpaid trust distributions

It is possible that an SMSF that held units in a related unit trust on or before 11 August 1999 may have accumulated unpaid trust distributions that have not yet been paid or reinvested back into the trust.

If an SMSF has accumulated unpaid trust distributions relating to multiple years, these distributions may currently be in-house assets. This is consistent with the ruling SMSFR 2009/3.

This ruling states that non-payment of trust distributions from a related trust may be seen as an arrangement for the provision of credit or financial accommodation, which satisfies the extended definition of a 'loan' in a related party (meeting the basic definition of an in-house asset)."

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

Thanks

SMSF AAA