Following intense interest in the laws of September 2007 which permit SMSF trustees to borrow under instalment warrant-type arrangements, on 4 April 2008 the ATO released a \u2018Questions and Answers\u2019 guide and Taxpayer Alert TA 2008\/5 on this topic.<\/p>\n
Note, these are not legally binding and trustees and advisers should not solely rely on their contents. However, the releases provide some guidance on the ATO\u2019s approach to a number of technical issues.<\/p>\n
Some of the key points to take from the releases:<\/p>\n
These releases indicate that SMSF borrowings can be a legitimate strategy if properly documented and implemented. It is clear that these arrangements can by no means be implemented as \u2018standard\u2019 products: these are complex transactions and each SMSF\u2019s proposed borrowing must be carefully considered in light of the technical superannuation and tax issues that invariably arise.<\/p>\n
The ATO flags the following as issues under consideration:<\/p>\n
DBA recommends extreme caution in respect of these issues given their current unsettled status.<\/p>\n
Members over 65 years must satisfy the \u2018work test\u2019 to make super contributions, ie, the member must be gainfully employed on at least a part-time basis for a period of at least 40 hours over a period not exceeding 30 days (aka \u2018the 40\/30 test\u2019). \u2018Gainfully employed\u2019 means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.<\/p>\n
Often this comes down to whether the member could be said to carry on a \u2018business\u2019 and in many cases this will involve income derived from investment properties owned by the member. It is clear that passive income earned from rental properties will not qualify as a \u2018business\u2019 and therefore will not satisfy the work test. However, if the member is sufficiently involved in the management of the rental property, this may qualify as gainful employment.<\/p>\n
Generally, the level of involvement needed to qualify is high. Most investors have a profit motive and may even be involved in a \u2018business-like manner\u2019, but more is required.<\/p>\n
A recent case from the Supreme Court of Queensland has highlighted the benefits of well drafted documentation.<\/p>\n
In Jenkins v Ellett<\/em> the parties disputed the identity of the appointor and trustee of a discretionary trust.<\/p>\n As is common in litigation, the dispute arose following from the death of a key family member (George Jenkins).<\/p>\n George was the co-trustee and appointor of the George Jenkins Family Trust. The trust deed contained a vague variation power. It provided that the trustee may vary all or any of the trusts declared.<\/p>\n George and the other co-trustee executed a deed of variation. This deed of variation purported to remove George as the appointor and appoint a new appointor.<\/p>\n It was held that it would be \u2018very odd and self-defeating\u2019 if the trustee could amend a deed to remove an appointor. Accordingly, the court declared the variation to be invalid.<\/p>\n This case could have been avoided if the original deed provided that a variation required the appointor\u2019s approval.<\/p>\n Alternatively, this case could have been avoided if the original deed expressly dealt with appointor succession. For example, better quality discretionary trust deeds allow:<\/p>\n DBA Butler\u2019s discretionary trust deeds contain both these strategies. <\/p>\n For further Information please contact:<\/p>\n DBA LAWYERS PTY LTD<\/strong> (ACN 120 513 037) Level 1, 290 Coventry Street, South Melbourne Vic 3205 DBA News contains general information only and is no substitute for expert advice. Further, DBA is not licensed under the Corporations Act 2001<\/em> (Cth) to give financial product advice. We therefore disclaim all liability howsoever arising from reliance on any information herein unless you are a client of DBA that has specifically requested our advice.<\/p>\n<\/div>\nDownload as PDF<\/a><\/span>\n","protected":false},"excerpt":{"rendered":"Don\u2019t let this happen to you or your clients<\/h3>\n
\n
\nPh 03 9092 9400 Fax 03 9092 9440 dba@dbalawyers.com.au<\/a> www.dbalawyers.com.au<\/a><\/p>\n