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SMSF holds all units in a pre 1999 unit trust with accumulated UPE at the end of each financial year. Practically, there will always be UPE from the unit trust back to the SMSF given that the financial statements are not ready until after the year end. Apart from paying interim distribution to manage the 5% and the $30K reportable threshold, are that any other means to overcome this issue?
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Hi Stephen
My understanding has always been that a pre August 1999 trust can have an UPE for up to 1 year and it will not be considered as a loan to be counted as an in-house asset. This is consistent with the trust distribution not being known until the financial statements of the Trust have been prepared. That is it has not yet taken on the appearance of being a loan.
This is consistent with ATO guidance that states:
https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/in-detail/smsf-resources/smsf-technical/transitional-rules-and-in-house-assets
"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)."
The SMSF ruling is SMSFR 2009/3 "Self Managed Superannuation Funds: application of the Superannuation Industry (Supervision) Act 1993 to unpaid trust distributions payable to a Self Managed Superannuation Fund". The ruling can be found at:
https://www.ato.gov.au/law/view/document?DocID=SFR/SMSFR20093/NAT/ATO/00001&PiT=99991231235958
If other forum members have a view please let the forum know.
Thanks
The Auditors Institute