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SMSF’s and non-arm’s length income

Self-managed super funds and related parties must transact on arm’s length terms. This ensures that both parties are acting in their own self-interest and will not succumb to any pressure from the other party. The true market value of an asset should always be reflected in the purchase and sale price of assets.

Members need to be aware of any income that can be classified as non-arm’s length to avoid being taxed at the highest marginal rate.

A potential non-arm’s length hazard is a limited recourse borrowing arrangement (LRBA). Under an LRBA, a member can borrow money to purchase an asset and receive the beneficial interest, but the legal ownership of an asset is held on trust by a related party for the SMSF member.

Problems arise when the alleged loan is not at commercial rates. For example, the ATO found two members of a self-managed super fund had a loan with zero interest. Consequently, the income acquired by the SMSF member as a beneficiary of the holding trust was considered to be non-arm’s length and they were subject to 45 per cent tax.

Posted on 29 June '15 by , under Super.

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What to consider when consolidating your super

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds' policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

  • Exit fees
  • Insurance policies
  • Investment options
  • Ongoing service fees
  • Performance of the funds

Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready:

  • Your tax file number.
  • Proof of identity. This could include your driver's license, birth certificate or passport.
  • Your fund's superannuation product identification number (SPIN).
  • Your fund's unique superannuation identifier (USI).
  • Details of your previous fund.

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