SMSF/ Unit Trust & lending

[agent007]

Hi forumites,

Wanted to check with you if the following scenario is allowed?:

• Creation of Unit Trust with corporate trustee
• I purchase 1,000 units at $1 each of the Unit Trust
• SMSF purchases 1,500 units $1 each of the Unit Trust
• SMSF lends $100,000 to the Units Trust @ 10% pa
• Unit trust lends $100,000 to a family trust @ 10% pa
• Family Trust uses loaned funds and own funds to purchase an income producing asset (let’s say shares or property)

After 10 year, Family trust pays down the loan to the Unit Trust.

Please, let know if the above scenario breaks any SIS Act rule?

Thanks!

 

[Terry_w]

The unit trust and discretionary trust would probably be related parties. s71

If lending more than 5% of the funds value it would breach s83

 

[coastymike]

The loan from the unit trust to the discretionary trust will result in a breach of SIS regulation 13.22 C and therefore you will breach the rules

Why wouldnt you use the smsf to purchase the shares or property directly ? Or if borrowing is required enter into a properly structures limited recourse borrowing arrangement ?

 

[agent007]

The loan from the unit trust to the discretionary trust will result in a breach of SIS regulation 13.22 C and therefore you will breach the rules

Why wouldnt you use the smsf to purchase the shares or property directly ? Or if borrowing is required enter into a properly structures limited recourse borrowing arrangement ?

Thank you Terry and Coastymike for your input.

Coastymike, in answer to your question, what I'm trying to do is to use the cash in the SMSF and obtain a higher return while at the same time enable the family trust to increment the asset base. At this stage I don't want the SMSF to purchase more assets but, reduce its current LVR.

Can any of you think of a form to achieve what I'm trying to do?

e.g. What If my SMSF lends to an unrelated individual. In turn, that individual lends to my family Trust. Will that work?

 

[Terry_w]

Thank you Terry and Coastymike for your input.

Coastymike, in answer to your question, what I'm trying to do is to use the cash in the SMSF and obtain a higher return while at the same time enable the family trust to increment the asset base. At this stage I don't want the SMSF to purchase more assets but, reduce its current LVR.

Can any of you think of a form to achieve what I'm trying to do?

e.g. What If my SMSF lends to an unrelated individual. In turn, that individual lends to my family Trust. Will that work?

Have a read of s71
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s71.html

look up the definitions of 'associate' etc

Look at "widely held trust" and its definition....

 

[coastymike]

Also section 85 prohibition of avoidance scheme. Under that scenario it would be seen that you have entered into an avoidance scheme as it is fairly easy to trace the transaction and you would be up for civil and worse criminal charges.

It looks to me like you really want to pull money out of your smsf. Why will the family trust generate a better rate of return on its investment than the smsf if it purchases exactly the same asset.

If you want to purchase an asset outside of your super however using super fund money then sorry not possible. I am still at a loss as to how your strategy is going to give you a better return on investment overall.

 

[agent007]

Have a read of s71
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s71.html

look up the definitions of 'associate' etc

Look at "widely held trust" and its definition....

Thank Terry & CoastyMike. Very informative and to the point.

 

[agent007]

Hi Terry 7 CoastyMike,

Sorry for sounding like a broken record. According to below ATO link my SMSF could lend me up to 5% of the assets value of the fund. Thus, let's say my SMSF assets value is $1M then, I could safely have up to a $50k loan.

Am I missing something? i understand that if the value of the assets decline then, I'll be in breach on the in-house rule. So, to be safe I can get a $40k loan. The thing is that if I going to pay interest then, I better pay them to my SMSF than to a 3rd party entity.

Thank you in advance for your comments!

http://www.ato.gov.au/superfunds/co...49/008/002/005&mnu=46117&mfp=001/149&st=&cy=1

Hi forumites,

Wanted to check with you if the following scenario is allowed?:

• Creation of Unit Trust with corporate trustee
• I purchase 1,000 units at $1 each of the Unit Trust
• SMSF purchases 1,500 units $1 each of the Unit Trust
• SMSF lends $100,000 to the Units Trust @ 10% pa
• Unit trust lends $100,000 to a family trust @ 10% pa
• Family Trust uses loaned funds and own funds to purchase an income producing asset (let’s say shares or property)

After 10 year, Family trust pays down the loan to the Unit Trust.

Please, let know if the above scenario breaks any SIS Act rule?

Thanks!

 

[Terry_w]

see
s82
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s82.html

and s83
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s83.html

But then s65
http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s65.html

Lending to members of regulated superannuation fund prohibited

Prohibition

(1) A trustee or an investment manager of a regulated superannuation fund must not:

(a) lend money of the fund to:

(i) a member of the fund; or

(ii) a relative of a member of the fund; or

(b) give any other financial assistance using the resources of the fund to:

(i) a member of the fund; or

(ii) a relative of a member of the fund