The Australian Taxation Office (ATO) has issued a statement of principles outlining when it can use its discretionary power under the Superannuation Industry Supervision (SIS) Act to determine whether or not an asset constitutes an in-house asset for self-managed superannuation funds (SMSFs).
The principles are contained in Practice Statement Law Administration PS LA 2009/8.
Under the guidelines, the regulator will only use its discretionary powers on a case by case basis, when it is requested to do so by an SMSF, and if the circumstances regarding the assets in question are extraordinary or unusual and the use of the ATO’s power will not challenge the fundamental purpose of the in-house asset rules.
In general, however, the ATO has suggested it will not allow relief or vary the in-house assets rule as a result of fluctuations in economic conditions, ignorance of the in-house asset rules by the SMSF trustee, the reliance on incorrect professional advice by the SMSF trustee, and the in-house asset providing a significant benefit for the SMSF in question.
Furthermore, the ATO will not use its power favourably in situations where it is needed to correct non-compliance with the transitional in-house asset rules or on occasions where an in-house asset exemption has not been adhered to.
If the ATO does vary the in-house asset rule, the decision will only apply to the specific SMSF that requested the relief and the assets within its control. As such, any particular favourable decision made by the regulator cannot be applied as a precedent for another SMSF to use.
Importantly, the ATO will only use its discretionary powers in conditions it sees fit and will apply the ruling retrospectively.
Under the in-house assets rule, an SMSF must not hold more than 5 per cent of the market value of its assets as an in-house asset. These types of assets include an investment or loan to a related party, a lease to a related party, and an investment in a related trust.
