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Who is a ‘related party’ in a SMSF?

retirement superannuation newcastle
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Self-managed super funds (SMSFs) have a number of investment restrictions which apply to transactions conducted within the fund.

One such restriction applies to transactions involving ‘related parties’ of the fund and ‘relatives of members.’ Identifying related party transactions in an SMSF can be complex, no one associated with the SMSF should obtain a present-day benefit from the fund’s investments. The fund needs to meet the ‘sole purpose test’ of providing death or retirement benefits to the SMSF members or their dependents.

The related party rules are designed to capture a wide group of people and entities that may be in a position to be directed by the member or operate in conjunction with the member. This is to prevent people using their SMSF to capture extraordinary investment gains in a concessionally-taxed environment. Any breach to the investment restrictions may result in significant penalties.

The ATO considers a ‘related party’ as:

  • A member of the fund.
  • Associates of fund members, including;
    • Relatives of each member.
    • The business partners of each member.
    • Any spouse or child of those business partners.
    • Any company the member or their associates control or influence.
    • Any trust the member or their associate’s control.
  • Standard employer-sponsors, which are employers who contribute to your super fund for the benefit of a member under an arrangement between the employer and a trustee of the fund.
  • Associates of standard employer-sponsors, which include business partners and companies or trusts the employer controls (either alone or with their other associates) and companies and trusts that control the employer.

Once a person or an entity is identified as a related party, then trustees can consider the compliance of the investment transactions between the SMSF and the related party.

If you would like any advice on your SMSF and compliance contact our SMSF team.

 

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