Caution advised on in-house assets
Financial advisers need to be careful at every point about whether parties are related when considering in-house assets in super, according to Cooper Grace Ward partner Scott Hay-Bartlem.
Their own first reaction on whether someone was a related party was almost always wrong, Hay-Bartlem said.
The regulatory provisions were rather torturous, he said.
The relationship between parties has to be looked at on every level of an in-house asset arrangement because the words ‘related party' could be found throughout the in-house asset rules, Hay-Bartlem warned.
The related party concept was the source of many of the misunderstandings concerning in-house assets, he said.
Many of the words in the relevant rules have a wide, extended definition, and that was important when considering in-house assets, Hay-Bartlem warned.
For example, the extended definition of a ‘loan' in a limited recourse borrowing arrangement (LRB) could encompass something that wouldn't normally be classified as a loan, Hay-Bartlem warned.
He also warned that if trustees leave an entitlement in a unit trust unpaid for long enough, it will fall under in-house asset rules as another form of financial accommodation.
The definition of a ‘lease arrangement' was also extensive, covering any situation where someone uses property owned by the super fund, Hay-Bartlem said.
He told delegates to consider using unit trusts as an alternative to an LRB, as it could achieve the same or better results in a much simpler fashion.
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