Many of the rules around investing particularly relate to transactions you might enter into with “related parties”.
The best way to think about who might be a “related party” of your SMSF is to assume that your relatives, your spouse’s relatives, other members of the SMSF and any companies or trusts that these people control, will be a related party. There are exceptions but this very broad definition is a good place to start.
Acquiring assets from related parties
In general, super funds are not allowed to acquire assets from related parties, but there are certain exceptions. For example, your SMSF could acquire the following from related parties, as long as the transaction is done at market value:
- a security listed on an approved stock exchange
- commercial property (although there are conditions to meet for a property to be allowable)
- units in trusts that are considered ‘widely held’ (for example, managed funds, certain unlisted property trusts with a large number of investors)
- in-house assets that don’t cause the fund to breach the limits on those types of assets
- units in trusts/shares in companies that meet particular conditions.
Remember, your fund can acquire assets in a variety of ways – it could buy them in the traditional sense (i.e. pay money for them), but it could also acquire them if the asset was given to the fund as an in specie contribution.
In-house assets are investments in, loans to or assets leased to related parties. For example, if your fund owns shares in a private company that you control, these shares will be an in-house asset. Similarly, if you lend money to that private company or lease equipment to it, the loan or the equipment will be in-house assets.
In-house assets are not illegal, they are just restricted. The total amount invested in in-house assets is not allowed to exceed 5% of the total value of the fund’s assets. There are some assets that are specifically exempt from being treated as in-house assets. A good example is commercial property (if it meets certain conditions). In other words, a fund could own a commercial property and lease it to a business controlled by a related party without being subject to the 5% limit.
Separation of assets
Trustees must keep their personal and business assets separate from the fund’s assets. All assets of the fund must be appropriately registered in the names of all trustees or in the name of the corporate trustee as trustee for the fund.
The Smith Superannuation Fund has two individual trustees/members, Peter and Wendy Smith. The fund’s assets should be held in the name of ‘Peter Smith and Wendy Smith as trustee for the Smith Superannuation Fund.’ If Peter and Wendy have a corporate trustee in place, Smith Super Pty Ltd, then the fund’s assets should be held in the name of ‘Smith Super Pty Ltd' as trustee for the Smith Superannuation Fund. Where it’s not possible to use the name of the fund, SMSF trustees should clearly document the fund’s ownership of the asset.
The names of all trustees should be as owners of all assets even if the way the fund is run is that particular assets are earmarked for certain members (e.g. you have two share trading accounts and one is used to invest your super and the other is used for your spouse’s super). This is because legally, the trustee owns all fund assets regardless of whether or not it has chosen to earmark some for one member rather than another.
The Smith Superannuation Fund has two members – Peter and Wendy – and their company Smith Super Pty Ltd is the trustee of the fund. They decide to set up two share trading accounts. One is earmarked for Wendy’s super and one is earmarked for Peter’s. They might set up the ownership accounts as follows:
This way, it is clear that Smith Super Pty Ltd is the legal owner of both accounts but it is easy for Wendy and Peter to see which one is which.