The Australian Taxation Office (ATO) has warned individuals about promoters offering to sell inactive pre-1999 self-managed superannuation funds (SMSFs) that have related unit trusts.
The regulator has advised caution in regard to purchasing and then running one of these funds, as the act may contravene certain sections of the Superannuation Industry Supervision (SIS) Act.
Under the promotional schemes in question an organiser offers, for a fee, to acquire a dormant pre-1999 SMSF with a pre-existing interest in a unit trust.
Once an agreement is reached the organiser takes control of the SMSF and transitions control to the new owners by arranging a change in the members or trustees of the fund.
The new trustees of the fund then roll over their existing superannuation balances into the SMSF and in turn have them invested in the related unit trust.
The purpose of these transactions is to allow the new trustees to take advantage of the transitional rules relating to pre-1999 SMSF unit trusts.
These include making investments in the trust before 1 July to have them excluded from treatment as in-house assets, and reducing capital gains liability from holding property in the trust.
However, the ATO has questioned whether these arrangements allow the pre-1999 SMSFs to satisfy the definition of a superannuation fund at all times, as to do this its operation before and after the sale has to be taken into account.
The regulator has also said the transitional provisions afforded to pre-1999 SMSFs with unit trusts may not apply due to the exit of the fund’s original trustees.
Furthermore, the ATO is concerned these transactions might breach section 85 of the SIS Act that prohibits any fund from entering into arrangements allowing it to avoid the new in-house asset restrictions.
