In-house assets are investments, loans or leases to Fund Members and related parties of the SMSF. You are restricted from lending to, investing in or leasing to a related party of the Fund for investments totaling more than 5% of the SMSF’s assets. There are some exceptions, including for business real property that is subject to a lease between the Fund and a related party of the Fund.
At the end of each financial year you have to apply the ‘in-house asset rule’ using market values to make sure the level of in-house assets held is still less than 5% of the Fund. If the market value of an in-house asset increases or the value of the Fund’s assets fall you’ll need to dispose of some of the SMSF’s in-house assets to ensure the SMSF is compliant.
The basic definition of an in-house asset is one of the following:
There are a number of exemptions from the definition of an in-house asset and these are:
Assets owned by an SMSF with a related party as tenants in common will not be an in-house asset simply because the SMSF and its related party share ownership. In this case, it will depend on whether the asset owned is itself an in-house asset.
An SMSF’s related parties are any of the parties below:
A Part 8 associate (so named because it comes from Part 8 of the SIS Act) (See Legislation and Rules on this page) of an SMSF member includes a relative, business partner (including their spouse and child), the trustee of a trust controlled by the member, and a company sufficiently influenced by the member or in which the member holds a majority voting interest.
The non-geared entity exemption provides a more flexible way for an SMSF to purchase and hold property jointly with related parties.
Instead of purchasing a property directly, the SMSF and related parties purchase units in a unit trust or company. The trust or company then purchases the property. One of the key benefits of this structure is that it will generally allow the SMSF to increase its ownership over time by acquiring further units or shares from the existing related party owners. This is allowed because of a specific exemption from the general rule prohibiting SMSFs from acquiring assets from related parties.
An investment by an SMSF in a non-geared entity that meets the rules set out in SIS Regulation 13.22B or 13.22C is not an in-house asset. The rules are designed to significantly limit the activities of the trust or company, and include the requirement not to:
Failure to comply with the rules listed above will bring the exemption to an end and any interest held by the SMSF will become an in-house asset.