Does an SMSF loan to a property trust constitute an in-house asset transaction? According to Interpretive Decision ATO ID 2014/23, it cannot be termed as an in-house asset transaction as the property trust is not a related party because the SMSF does not own any units in the property trust, the loan is made through a commercial agreement and related parties to the SMSF own less than 10% of the units in the property trust.
What about change in ownership of units?
This said, a little vagueness has crept in for all cases where change of ownership of units in the property trust comes into the equation. It is not an unforeseen circumstance and, time and again, such things can happen. Won’t loan to an unrelated party turn into an in-house asset in these cases? I think, the risk element, more than others, need to be watched closely by the private property trusts.
Acquisition of units over time
Look at it this way: during its foundation a private trust may have unrelated members. This way, the nature of loan is commercial. With time, SMSF or its related parties may acquire units in the trust and in turn gain control over the property trust, becoming a related party. It is not hard to fathom where the danger element lies. It is contextually important to remember that an SMSF’s and related party’s ownership percentage are aggregated to figure out control.
