SMSF
Ashwin Ramdas Updated Jun 15, 2023
Mate Checked
This information has been reviewed by our SMSF Mates before it was published as part of our review process.
A related party of a self-managed superannuation fund is any person or entity who is somehow connected to the fund. This includes, but is not limited to, the fund’s trustees, members, directors, officers, and relatives of these people. The definition of a related party also extends to businesses and other entities that are controlled by, or under common control with, the SMSF or its trustees and are governed by the in-house asset rules. Related parties also include any person or entity who provides services to the SMSF, such as an accountant or financial adviser.
There are several types of transactions that can only be entered into between an SMSF and a related party if certain conditions are met. These conditions are designed to ensure that the SMSF is not used to benefit a related party at the expense of the other members of the fund.
If you are a member of an SMSF, you are considered to be a related party to the fund. This means that there are restrictions on certain transactions between the SMSF and related parties. These restrictions are in place to ensure that SMSF members do not use their fund to unfairly advantage themselves or their relatives.
There are two types of relatives that are relevant for the purposes of SMSFs:
Some common examples of transactions involving related parties that may be restricted between an SMSF and a related party include:
If you are thinking about entering into a transaction with your SMSF, it is important to seek advice from a qualified financial advisor to ensure that you comply with the in-house asset rules and super regulations.
Jump to a specific part of this page:
A related party of an SMSF is any individual or entity who is either a trustee or beneficiary of the fund or has a close relationship with the trustees or beneficiaries. This includes family members, business partners and close friends.
Related party transactions can take many different forms, but all have the potential to create conflict of interest situations that could jeopardise the fairness and integrity of the superannuation system.
The most common type of related party transaction is where one party provides goods or services to the fund in exchange for payment from the fund’s assets. These transactions must be at arms-length in order to avoid any potential conflicts of interest.
Another common type of related party transaction is where a trustee or beneficiary loans money to or borrows money from, the fund. These transactions also need to be at arms-length and on commercial terms in order to avoid any potential conflict of interest.
Some examples of transactions that may require special treatment if entered into between an SMSF and a related party include:
If you are thinking of entering into any type of transaction with a related party of your SMSF, it is important to seek professional advice to ensure that you comply with the relevant laws and regulations.
An SMSF can buy from a related party, but there are some conditions that must be met in order for the transaction to be considered compliant. The most important condition is that the purchase must be at arm’s length. This means that the parties involved in the transaction must act in their own best interests, and not in a way that would benefit either party more than the other.
If the SMSF is buying an asset from a related party, the price of the asset must be fair market value. This can be difficult to determine if there is no comparable market for the asset, but there are some methods that can be used to estimate fair market value.
The other main condition that must be met when an SMSF buys from a related party is that the transaction must be in the best interests of the fund. This means that the purchase must be made for a valid purpose and that it must be beneficial to the SMSF as a whole.
If you’re thinking of buying an asset from a related party, it’s important to get professional advice to make sure that the transaction is compliant.
The related party exemption is a rule that allows SMSFs to invest in assets held by related parties, provided certain conditions are met.
The main condition is that the asset must be acquired at market value, and must not be acquired from a related party who is also a trustee or member of the SMSF.
If these conditions are met, then the investment is exempt from the general prohibition on investing in assets held by related parties.
The exemption applies to a wide range of investments, including shares, property and businesses.
The purpose of the exemption is to allow SMSFs to invest in a wider range of assets than would otherwise be possible, and to provide flexibility for trustees when making investment decisions.
The exemption is subject to a number of other conditions, including the requirement that the investment must be in the best interests of the fund and its members.
The exemption is also subject to disclosure requirements so that members are aware of the investment and can make an informed decision about whether or not to approve it.
If the property is leased to a related party, the terms of the lease must be on an arm’s length basis. This means that the rental amount must be reasonable and reflect what would be paid by an unrelated party in the same market circumstances.
The other key condition is that the SMSF trustee cannot derive any personal benefit from the lease arrangement. For example, they cannot live in the property or use it for business purposes.
If these conditions are met, then leasing a property to a related party can be a good way to generate income for your SMSF. However, it’s important to seek professional advice before entering into any such arrangement.
There are a few things you should avoid doing with your SMSF related parties. Here are a few examples:
