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This will only make sense to Australian visitors to the site -
SMSF’s and Unit Trusts
The SIS regulations (13.22) contain provisions that make a related unit trust of an SMSF an in-house asset if it breaches any one of a series of conditions. These conditions are quite specific and include incidents such as borrowing, investing and leases to related parties. Further reading of the regulations at 13.22 make it quite clear that once such a breach occurs the unit trust will be an in-house asset even it that breach happened many years ago, was corrected and no breach has ever occurred or been repeated since. This raises some interesting questions.
Once a breach occurs the SMSF has no choice but the sell down its unit trust holding to less than 5% of SMSF assets.
As a newly appointed accountant of a SMSF with a related unit trust, could you be held liable if that breach occurred in the past and action was not taken but you failed to check the issue when preparing your return for your new client?
If a related unit trust of a SMSF is less than 5% of the SMSF assets, one would assume you have everything to loss and nothing to gain by allowing the unit trust to rise above 5% no matter what the circumstances. To avoid any risk of litigation the accountant should request a new unit trust be established.
Under 13.22 a breach is a breach and there is no going back. An SMSF with a related unit trust holding a $1 million property inadvertently buys $1,000 of shares in BHP Billiton. The shares are sold some months later when the error is spotted but 13.22 applies and the SMSF must sell down the unit trust, to meet the 5% rule, within 12 months. As an auditor of a SMSF how do you check for transactions that at face value seem not to be material (ASA 320) and whose short-term nature means they did not appear on SMSF year-end balance sheets?
SMSF’s and Unit Trusts
The SIS regulations (13.22) contain provisions that make a related unit trust of an SMSF an in-house asset if it breaches any one of a series of conditions. These conditions are quite specific and include incidents such as borrowing, investing and leases to related parties. Further reading of the regulations at 13.22 make it quite clear that once such a breach occurs the unit trust will be an in-house asset even it that breach happened many years ago, was corrected and no breach has ever occurred or been repeated since. This raises some interesting questions.
Once a breach occurs the SMSF has no choice but the sell down its unit trust holding to less than 5% of SMSF assets.
As a newly appointed accountant of a SMSF with a related unit trust, could you be held liable if that breach occurred in the past and action was not taken but you failed to check the issue when preparing your return for your new client?
If a related unit trust of a SMSF is less than 5% of the SMSF assets, one would assume you have everything to loss and nothing to gain by allowing the unit trust to rise above 5% no matter what the circumstances. To avoid any risk of litigation the accountant should request a new unit trust be established.
Under 13.22 a breach is a breach and there is no going back. An SMSF with a related unit trust holding a $1 million property inadvertently buys $1,000 of shares in BHP Billiton. The shares are sold some months later when the error is spotted but 13.22 applies and the SMSF must sell down the unit trust, to meet the 5% rule, within 12 months. As an auditor of a SMSF how do you check for transactions that at face value seem not to be material (ASA 320) and whose short-term nature means they did not appear on SMSF year-end balance sheets?