Dealing with related-party transactions can be challenging for SMSF Trustees. Care should be taken when acquiring assets from related parties or entities they control. There are, however, some exceptions, including listed shares, widely-held Unit Trusts (Managed Funds) and business real property. Additionally, acquisitions of in-house assets are allowed as long as their total value remains less than 5% of the Find’s assets.

Sometimes, related-party transactions can occur unintentionally. For example, in our recent audit case, Trustees used their personal bank account to buy collection shoes from a third party and recorded it as a non-concessional contribution to the SMSF. The ATO has strict rules about contributions: only cash or in-specie contributions of listed shares or business real property are permitted. Trustees must not deliberately acquire assets from related parties, including in-specie contributions. In this case, the shoes would be treated as a related-party transaction. Moreover, if their value exceeds the SMSF’s in-house asset limit, the Trustees would have breached the rules prohibiting transactions with related parties.

A recent post by Darin Tyson-Chan discusses some issues regarding the related-party purchases:

Related-party purchases misread