With certain exclusions, an In-House Asset of a super fund is an asset that is any one of the following:
• A loan to, or an investment in, a related party of the fund
• An investment in a related trust of the fund
• An asset of the fund that is subject to a lease or lease arrangement between the trustee of the fund (you) and a related party of the fund.
Generally, as a trustee of an SMSF you cannot lend to, or invest in, a related party or related trust of the fund, where the loans, or the values of the assets that are the subject of the investment or lease arrangement, are greater than 5% of the market value of the fund's total assets.
If your SMSF has In-House Assets with a value of more than 5% of the market value of the fund's total assets, you risk one of the following:
• The fund being made non-complying
• A range of other penalties
• The inability to purchase further in-house assets
The penalties for holding more than 5% of your Super in an In-House Asset is that the income from the asset will be taxed at 45%, plus your fund could become non-complying.
You need to check the level of your In-House Assets regular as the 5% rule could be breached either from the value of the In-House Asset increasing, or the value of the other assets in the portfolio decreasing.
If you do breach the In-House Asset rules you need to develop a strategy to reduce your exposure to the In-House Asset over the next 12-months.
For more information please contact us on 07 4771 4577.