Related Parties SMSF

A “related party” of a superannuation fund means any of the following:

• a member of the fund or a “Part 8 associate” of a member

• a standard employer–sponsor of the fund or a Part 8 associate of a standard employer-sponsor of the fund (SIS Act s 10(1)

All SMSF investments must be made and maintained on a strictly commercial (i.e. arm’s length) basis. In other words, the purchase and sale price of all assets should be based on a fair market value regardless of who the buyers and sellers are.

The trustees of a SMSF are strictly prohibited from lending any money (or providing any form of financial assistance) to a member of the fund or their relatives.

The trustees of a SMSF must not intentionally acquire assets from a ‘related party’ of the fund. The definition of related party is very broad and includes the members and trustees of an SMSF as well as their relatives, business partners and any associated companies and trusts.

Determining which entities will be a related party of an SMSF can be complex, so you may wish to seek advice if in doubt. There are some exceptions to the above rule for acquiring related party assets, including:

• Listed securities (i.e. shares, units or bonds listed on an approved stock exchange, such as the ASX).

• Business real property (i.e. freehold or leasehold interests in real property used exclusively in one or more businesses) acquired at market value.

• An in-house asset where the acquisition would not result in the level of the fund’s in-house assets exceeding 5%.

• Units in a widely held unit trust, such as a retail managed fund.

In broad terms, Part 8 associates are those entities that are relatives of the individual, partners, companies that are controlled or majority-owned, or entities that control the primary entity

The following diagram shows the Part 8 associate of a primary entity that is an individual (i.e. a member or an employer-sponsor).