ATO Interpretative Decision
ATO ID 2007/58
Superannuation
Self Managed Superannuation Fund: trustee using a margin account for fund investments in listed sharesFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Has a trustee of a self managed superannuation fund (SMSF) that operated a margin account to purchase listed shares contravened the Superannuation Industry (Supervision) Act 1993 (SISA)?
Decision
Yes. The trustee of an SMSF that operated a margin account to purchase listed shares has contravened the SISA as they have borrowed money and granted a charge over shares that are assets of the fund.
Facts
In relation to shares, a margin account with a broker is an account through which shares can be purchased for a combination of cash and a loan (margin lending). The portfolio of shares is used as security for the margin lending facility.
An SMSF trustee maintained a margin account with a broker's clearing house.
The margin balance continued over a period of time at different monetary levels depending on the value of shares on hand.
Reasons for Decision
Subsection 67(1) of the SISA prohibits a trustee of an SMSF from borrowing money or maintaining an existing borrowing of money. There are limited exceptions to the general prohibition available under subsections 67(2), 67(2A) and 67(3) of the SISA. Operating the margin account does not fall within any of the exceptions. The trustee has therefore contravened subsection 67(1) of the SISA.
Regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994 (SISR) is a prescribed operating standard for regulated superannuation funds under section 31 of the SISA. Subsection 34(1) of the SISA requires that the operating standards are complied with at all times.
Regulation 13.14 of the SISR prohibits a trustee of an SMSF giving a charge over, or in relation to, an asset of the superannuation fund. Regulation 13.14 of the SISR is subject to regulation 13.15A of the SISR which permits a trustee to give a charge in relation to certain options and futures contracts in order to comply with the rules of an approved body (for example the Australian Securities Exchange) provided the investment is in accordance with the fund's derivatives risk statement.
Shares held as assets of the fund were provided as security for the loan taken out to purchase such shares and this represented a charge over some of the assets of the SMSF. This arrangement does not fall within the exception provided for in regulation 13.15A of the SISR. The trustee has therefore contravened regulation 13.14 of the SISR and consequently subsection 34(1) of the SISA.
Date of decision: 9 March 2007Year of income: 30 June 2007
Legislative References:
Superannuation Industry (Supervision) Act 1993
section 31
section 34(1)
section 67
section 67(1)
section 67(2)
section 67(2A)
section 67(3)
regulation 13.14
regulation 13.15A Related ATO Interpretative Decisions
ATO ID 2007/56
ATO ID 2007/58
Keywords
Self managed superannuation funds
SMSF borrowings
SMSF breach of compliance
SMSF charge over assets
SMSF investments
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 9 March 2007 | Original statement |
| 7 November 2014 | Updated statement |