SPAA urges caution on ATO interpretation

Self-managed super fund (SMSF) trustees have been warned to act cautiously with respect to acquiring assets that have been used as security for personal loans, despite a recent Australian Taxation Office (ATO) interpretive decision.

Self Managed Super Fund Professionals' Association (SPAA) director Peter Burgess said that notwithstanding the ATO interpretive decisions, acquiring an asset which had been used as security for a personal loan to a member could be construed as the SMSF providing current day benefits to a member contrary to the sole purpose test.

"Similarly, the arrangement could constitute providing financial assistance to a member in contravention of the rules," Burgess said.

The recent ATO interpretive decision drew a distinction between recognising a previously established charge and creating a new charge, but Burgess said caution was still necessary.

"While SPAA agree that the distinction between merely recognising a previously established charge and creating a charge is important, in a practical sense, a change in the legal title of an asset (which occurs when the asset is acquired by the SMSF) would normally require the existing mortgage to be discharged and the registration of a new mortgage in the name of the SMSF trustees," he said.

"The registration of the new mortgage could then be interpreted as the new owner (the SMSF trustee) giving a charge over an asset of the fund in breach of the rules," Burgess warned.

He said that in light of these compliance issues, SPAA was urging practitioners to exercise extreme care in situations where the trustees might be acquiring an asset with a previously established charge.