Heffron confirms ATO approach to SMSF in-house asset rules

In an attempt to allay fears and confusion about the self-managed superannuation fund (SMSF) in-house asset rules, Heffron has approached the Australian Taxation Office (ATO) for clarification.

With the volatility experienced during the global financial crisis, a number of SMSF trustees found themselves in breach of the 5 per cent limit on in-house assets rules as the value of the assets in their fund fluctuated.

Heffron, an SMSF administration firm, confirmed with the ATO that by law, should a fund exceed the 5 per cent threshold by June 30, 2009, the trustee must: quantify the excess in dollar terms at that date, prepare a written plan for selling down the in-house assets by that amount, and implement the plan within the following 12 months.

However, the unprecedented consequences of the crisis led to certain circumstances whereby, although the super fund was in breach as at June 30, the value of the assets has since fallen below the 5 per cent limit.

As an example, Heffron explained that according to the law a $1 million fund with $60,000 (6 per cent) in in-house assets as of June 30, 2009 is technically obliged to sell $10,000 in in-house assets. This remains the case, even if the value of those in-house assets has fallen below 5 per cent and even if the fund’s other assets have risen (therefore pushing the in-house assets proportion below 5 per cent) by the time the trustee is ready to sell.

Heffron said the ATO’s current approach is that while they cannot be more flexible, they are being more lenient towards those that have failed to sell assets while having fallen below the 5 per cent threshold. Heffron has suggested that as long as the funds fall back within the 5 per cent limit before the end of the next financial year, trustees take no action and simply report the breach.