Related Party Clarification

11 Sep 2018

Written by

David Busoli, Principal

Following the last 3 week’s posts I have received a number of questions about related party directors.

If two individuals are in a partnership they are Part 8 Associates however, if their business venture is operating through a company of which both are Directors, this (of itself) will not make them associates for the purposes of SIS.

Commonly, in such arrangements, they wish to purchase business real property with their superannuation monies. Often this requires a borrowing. If they are in the same SMSF they are related parties and the fund will require a limited recourse borrowing to enable the transaction.

There are various issues that may arise where business “associates” are in the same SMSF. These are best avoided by keeping them in separate funds.

If they are not Part 8 Associates and have separate SMSFs, it would be possible for each of their funds to take a 50% position in an uncontrolled trust which could then acquire the property with gearing. A side benefit of such an arrangement is the availability of a limited recourse borrowing as an exit strategy should one SMSF wish to acquire the other SMSF’s interest as the property being acquired by the fund would be a “new” acquisition.

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