Who is an Associate of your SMSF?

Why do we need to know what an associate is? Why does it matter who is an associate of your SMSF?

The superannuation legislation (SISA) restricts certain investments and dealings with related parties of a self-managed super fund (SMSF). The following are prohibited unless there is an exception:

• acquiring assets from a related party
• investment in related parties, assets leased to or loans to related parties
• leasing, storing or use of SMSF collectables by related parties

A related party includes:

• all members of your fund
• a Part 8 associate of fund members
• standard employer-sponsors
• a Part 8 associate of employer-sponsors

A standard employer-sponsor is relatively rare and is not covered in this blog.  It is generally an employer who is included as a party to a SMSF’s trust deed.  Most employers will not be a standard employer-sponsor. If you happen to have a very old trust deed or an old arrangement with your employer sponsor than seek advice from your SMSF specialist.

It is critical to know who is a part 8 associate (associate) of a SMSF member. Associates of a SMSF member include:

• • the relatives of each member (includes a de facto spouse but does not include a former spouse)
  • other members of the SMSF
  • the business partners of each member
  • any spouse or child of those business partners
  • any company the member or their associates control or influence
  • any trust the member or their associates control.

Control is key when looking at associates. Who can control the entity is crucial.  SISA is designed to ensure a SMSF is run on an arm’s length basis despite the inherit conflict of interests when the members and the trustees are the same people. Transactions between related parties need to be transparent.  The mischief the ATO is concerned about is a SMSF member or their associates obtaining a present-day benefit when an investment is not being made with the sole purpose of providing for a member’s retirement.

Identifying who the associates of a SMSF member are can be very complex and to help you understand what an associate may be the following examples are provided:

Facts

Alia and Tommy are married and are all of the members of a SMSF, A&T SFD. They are the directors of the corporate trustee, Tom Pty Ltd. A&T SFD acquired 50% of the units in a private unit trust, PUT. The other 50% unitholder is a private company, P&K Pty Ltd. Paul and Katie are in a de facto relationship and are the shareholders and directors of P&K Pty Ltd.

The trustee of PUT is TomKat Pty Ltd, and the shareholders and directors are Alia, Tommy, Paul and Katie. All of the shareholders and directors have equal voting rights. Alia and Tommy are not related to Paul and Katie and do not have any other associations together.

Is the trust a related party of A&T SFD?

Identify who the associates of Alia and Tommy are.