by clicking the arrows at the side of the page, or by using the toolbar.
by clicking anywhere on the page.
by dragging the page around when zoomed in.
by clicking anywhere on the page when zoomed in.
web sites or send emails by clicking on hyperlinks.
Email this page to a friend
Search this issue
Index - jump to page or section
Archive - view past issues
Forward Thinking Magazine : August 2011
30 Macquarie Adviser Services Macquarie Adviser Services is the unit trust a related trust for in-house assets purposes? Prima facie the unit trust is an in-house asset, but certain exceptions to the in-house assets rules may be applicable. The most likely exceptions are: widely held trusts – widely held trusts are unit trusts where 20 or more entities have fixed entitlements to more than 75 per cent of the income or capital of the trust. This exception is unlikely to be of benefit to an SMSF LRBA, largely because of the loss of control over the underlying asset and the practical complications of dealing with a large number of unit holders. Non-controlled trust – a trust where the SMSF and certain associates (‘Part 8 associates’) do not have fixed entitlements to more than 50 per cent of the income or capital of the trust. Additionally, the trustee must not be accustomed to, under an obligation or reasonably expected to act in accordance with the directions of the SMSF or Part 8 associates. The latter must not be able to remove or appoint the trustee. A non-controlled trust may be established by three arm’s- length parties each holding an equal number of units in the trust. However, the loss of control over the underlying asset is the major deterrent to using this structure. reg 13.22C trust – an ungeared unit trust with a limited range of allowable assets, excluding shares, other trust interests (e.g. managed funds) or loans to other entities, but may include bank deposits and real property. The trust may not allow any charges over the assets held in the trust, which may be an issue of concern for commercial LRBA lenders. But a Reg 13.22C trust may be appropriate for real property LRBAs where the funds are borrowed from a commercial lender by a related party to the SMSF (with security provided over property other than the asset in the trust) and on-lent to the SMSF. Note also that unless business real property is involved, leases to related parties are prohibited. Of the three exceptions listed here, many SMSFs may find the Reg 13.22C trust as the most suitable for holding real property via LRBA, but the restrictions should be understood by advisers and SMSF trustees before proceeding. Other structural options A trust is not the only ownership option for the real property other than direct ownership by the LRBA holding trust. A company structure may also be used on a similar basis to exceptions 2 and 3 above. More generally, an interest in real property can be held by an SMSF jointly with another party (perhaps another SMSF) on a tenants-in-common basis. But APRA Superannuation Circular II.D.6 suggests caution where the other party intends to offer its interest in the property as security on a loan. In particular, an SMSF trustee in this situation should obtain written confirmation from the lender that the SMSF’s interest in the property receives priority in case of a forced sale by the other party or the lender. If an LRBA involves a tenants-in-common interest in real property, the LRBA documentation should be carefully considered and drafted so that the interest in the property is appropriately identified as the ‘asset’ to which the LRBA applies. As an example of the complications that can arise, see ATO ID 2010/172. In that case, two SMSFs entered into separate LRBAs which were found to be in breach of the SIS provisions because the asset the SMSFs would ultimately receive on wind-up of the arrangement was a tenants-in-common interest, whereas the asset held by the holding trust was the sole title to the real property. 1 2 3