Auditors of Super funds report various SMSF contraventions to the ATO. Among them, breach of the arm’s length rule and unlawful separation of the personal asset-SMSF asset feature prominently. Super specialists feel that those SMSF owners who also own SMEs are more prone to making ‘ATO’ mistakes.
Arm’s length enterprise
There are SME owners who feel that their SMSF assets can cushion the collapsing fortunes of their SMSF. Where an arm’s length enterprise could spell trouble, they seek to bend all the rules of related party transactions. Naturally, they pay the penalty. SME owners will do well to keep in mind certain points when their SMSF venture happens to be in the thick of the things.
Sole Purpose Test
Super fund relates to a Sole Purpose Test that says that it should be used entirely for the purpose of funding retirement. “Chasing good money after bad” does not work and a financially hit SME venture can hardly be put in place with SMSF asset without breaking its bone and thus compromising retirement.
Related party transactions
Even when the terms are strictly commercial, it may not be in the best interest of SMSF owners to indulge in related party transactions. It is imperative to follow the in-house asset rule, too. It says that any transaction of rent or lease or loans above 5% of the total asset value is not permissible.
SMSF is the business landlord
There can also be cases when your SMSF is also the landlord of the business. Now, if you have a fund-owned business premise, you can rent it to your members’ business. While this is in breach of the in-house asset rule, it can be done if you are ready to go by the arm’s length transaction protocol.
Correcting the errors
If you have broken terms and breached Super laws prior to June 30, the premier body is ready to let the matter go if you are willing to make amends and rectify the errors.