Who’s a Related Party?

31 Aug 2023

Written by

David Busoli, Principal

The SIS Act pays special attention to the inherent conflict of interest that exists in all SMSFs due to the trustees being the members and vice versa. This limits the financial dealings that the fund can have with related parties so identifying who these are is vital. SIS sec 10(1) defines these as a member, standard employer sponsor of the fund or part 8 associate but identifying these is not always clear.

Fund members are obvious. Less obvious is a standard employer-sponsor of the fund. This type of employer sponsor is noted in the trust deed. It would be highly unlikely for them to exist now but best to check. Less obvious still are the part 8 associates of a member.

The part 8 associates are:

  • a relative of the member (parent, grandparent, brother, sister, uncle, aunt, nephew, niece, linear descendant or adopted child of the member or their spouse or a spouse of the aforementioned) – not cousins
  • other members of the SMSF (and other trustees/ directors of a corporate trustee of the fund)
  • partners of the member and their spouses and children (not necessarily co-directors/ shareholders in a private company)
  • the trustee of a trust the member controls and
  • a company sufficiently influenced by, or in which majority voting interest is held by the member and their Part 8 associates either individually or together.

A member of the fund will be deemed to control a trust where the member and/or their part 8 associates are:

  • entitled to a fixed entitlement of more than 50 per cent of the capital of the trust,
  • entitled to a fixed entitlement of more than 50 per cent of the income of the trust,
  • able or accustomed (formally or informally) to direct the trustees to act in accordance with their directions or
  • able to appoint or remove trustees.

A company will be deemed to be controlled by a member where the directors are accustomed or under an obligation to act under the instructions of the member and/ or their Part 8 associates or the member and/ or their part 8 associates have more than 50 per cent of the voting rights.

Related party status is often unclear, especially when companies and trusts are concerned, but we are here to clear up any confusion our alliance partners may have.

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