The definition of 'give a charge' was recently evaluated by the Commissioner who ruled that the SMSF trustee is not taken to have given a charge for the purposes of the regulation 13.14 and the SMSF would remain a complying superannuation fund if:
The Commissioner's view
- An SMSF trustee acquires real property from an unrelated party
- At the time of purchase, there is a charge over this property in favour of an unrelated party
- The SMSF trustee is aware of the existence of this charge
- The charge remains after the SMSF trustee acquires the real property
The Commissioner's view is based on the ordinary definition of 'give' and notes that the SMSF trustee has not given a charge in respect of the asset. This requires an act by the trustee during a time which the trustee owns the asset. In this case, the trustee has acquired the asset with a charge already on it.
Alignment with SMSF investment strategy
While the decision may appear to open up some opportunities for SMSF trustees, practitioners and clients would need to consider some of the other SIS requirements like consistency with the SMSF's investment strategy, the sole purpose test and the trustee's requirement to deal on arms-length terms.
The meaning of the word 'recognise' in regulation 13.11 defines the word as not only 'give effect to' but also 'act on' which suggests that any act by the trustee to execute any such pre-existing charge may contravene regulation 13.12.
This may apply even though the ATO suggests that it will only take the approach that requires a positive act by the trustee to 'create' a charge when the asset is owned by the fund.
If you are concerned that this may apply to your SMSF, please contact us on (02) 9957 4033 or email your enquiry to our team.
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Last updated January 2012. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.