A4 Companies - Company Profile

During discussions today with Stuart Forsyth, the spokesman nominated by the ATO in the TA (Tax Alert) 2008/5 issued earlier this year, Mr. Forsyth agreed that their are important questions still to be clarified by the ATO.
We will be writing to the ATO. regarding the following issues:

Important issues remain unclear including answers to:

Whether a borrowing by a RSF (Regulated Super. Fund) must be made directly by the RSF Trustee or may be made on its behalf by a related party including the Trustee holding the asset acquired with the loan ?

Whether the SMSF Trustee should grant a Power of Attorney to make the borrowing by the asset Trustee ?

Will a breach of S67 (4A) occur if the loan is secured by Personal Guarantees granted by the SMSF Trustee/Members ? A breach may occur because the lender could gain access to other assets of the fund indirectly in the following circumstances:

1. Where the loan is in default or has not been settled in full by sale or recourse to the asset and the members guarantee is called up to satisfy the debt balance in circumstances where either :

2. The member has become presently entitled to benefits by drawing a transitional pension between age 55 and retirement,

3. If the Member is under the age of 55 the lender could gain a Court judgement and leave it on foot until he is legally able or obliged to commence to receive his benefits, at which time the lender could enforce the debt, even after many years.

4. The member has become disabled and is eligible to receive benefits from the fund.

5. The Member has died and benefits are now to be payable to the dependent family (who could be liable for the debt guarantee) or to the Members estate.

Breach of the SMSF legislations carries both civil (financial) and criminal penalties for those who breach the borrowing regulations. If a trustee is prosecuted and is found guilty of either a civil and/or criminal offence under a civil penalty provision, the maximum penalties that may apply under Part 21 of the SIS Act are $220,000 (civil proceedings) and/or five years imprisonment (criminal proceedings).

Protection of superannuation benefits against debts
It is important to remember that although superannuation benefits are protected in many cases in the event of bankruptcy while they are still in the fund, they become accessible to creditors when they are paiyable to the Member or the family. In the circumstances listed above a creditor may not proceed to bankruptcy once a debt judgement is obtained, they may simply grab any available assets and wait for the balance until super. benefits become payable and open to attack. While the judgement debt is outstanding court interest may accrue, in NSW the current interest rate is 9% per year.

Anthony Willcocks, Director of A4Companies and Fintel Group says "I believe that there are less expensive and safer ways to make these borrowings. I would urge Trustees do nothing about borrowing directly with your SMSF until the banks have reviewed their lending arrangements and their lending procedures are validated by the ATO."

Trustees of SMSF can down-load a detailed statement on the reasoning leading to the views of Anthony Willcocks from the link below.