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Who is a ‘related party’ in an SMSF?

Self-managed super funds (SMSFs) have a number of investment restrictions which apply to transactions conducted within the fund.

One such restriction applies to transactions involving ‘related parties’ of the fund and ‘relatives of members.’

No one associated with the SMSF should obtain a present-day benefit from the fund’s investments. The fund needs to meet the ‘sole purpose test’ of providing death or retirement benefits to the SMSF members or their dependents.

A breach to the investment restrictions may result in significant penalties, such as the disqualification of a trustee and even prosecution.

The Tax Office considers a ‘related party’ as:

– relatives of each member

– the business partners of each member

– any spouse or child of those business partners

– any company the member or their associates control or influence

– any trust the member or their associates control

The ATO considers a ‘relative of a member’ as a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the member or their spouse; or a spouse of any individual specified previously.

Generally, SMSFs cannot borrow money and cannot buy assets from, or lend money to, fund members or other related parties (although there are exceptions to this rule).

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Tax on super death benefits for dependants vs non-dependants

July 9, 2020

A super death benefit is the super paid after a person’s death, usually to a nominated beneficiary. These benefits are subject to different tax treatments, depending on whether the beneficiaries are dependant or non-dependant.

Superannuation death benefits will generally be received tax-free by tax dependants, who are considered to be:

Dependants will not have to pay tax on the tax-free component of their super in the event that they:

However, they will be taxed at their marginal rate if they receive a capped benefit income stream and:

Not all super death benefits are subject to tax; for non-dependants, there is a taxable portion. This component is largely made up of after-tax super contributions that the deceased member has made.

Super death benefit payments are subject to tax when:

Non-dependants must calculate how much money in the super account is a:

The amount of tax non-dependants pay will be based on their marginal tax rate, however, this amount may be reduced by tax offsets. For the taxed element of the taxable component, the effective tax rate is your marginal tax rate of 17% (whichever is lower). For the untaxed element of the taxable component, the effective tax rate is 32% or your marginal tax rate (whichever is lower).