What is an in-house asset?
An in-house asset is any of the following:
- a loan to, or an investment in, a related party of your fund
- an investment in a related trust of your fund
- an asset of your fund that is leased to a related party.
There are some exceptions, including:
- business real property that is leased between your fund and a related party of your fund
- some investments in related non-geared trusts or companies.
In-house assets can't be more than 5% of your fund’s total assets.
What to do if in-house assets exceed 5%
At the end of a financial year, if the level of in-house assets of a SMSF exceeds 5% of its total assets, trustees must prepare a written plan to reduce the market ratio to 5% or below.
This plan must be prepared before the end of the next year of income. For example, if an SMSF exceeds the 5% in-house asset threshold as at 30 June 2018, a plan must be prepared and implemented on or before 30 June 2019.
Note: There were transitional rules that applied to certain assets owned before 11 August 1999 which meant they were not considered to be an in-house asset. This 10-year transitional period ended on 30 June 2009.
Dealing with the impact of COVID-19
Many SMSFs will experience a drop in asset values due to the economic impact of COVID-19. This could result in:
- the in-house assets being more than 5% of the total assets
- breaching the in-house assets rules as at 30 June 2020.
These funds are required to prepare and implement a rectification plan by 30 June 2021.
We will not undertake compliance activity if you were unable to execute the rectification plan for your fund before 30 June 2021. This is because the market has not recovered, or it was unnecessary to implement the plan as the market had recovered.
Our compliance approach also applies where the SMSF exceeded the 5% in-house asset threshold as at 30 June 2019 but has been unable to rectify the breach by 30 June 2020.
For more detail, see SMSFR 2009/4 Self Managed Superannuation Funds: the meaning of 'asset', 'loan', 'investment in', 'lease' and 'lease arrangement' in the definition of an 'in-house asset' in the Superannuation Industry (Supervision) Act 1993.
Unpaid trust distributions
If your SMSF is entitled to a distribution from a related trust but you allow it to remain unpaid, you may contravene the:
- in-house-asset rules
- arm's length rule
- sole purpose test.
For more detail, see SMSFR 2009/3: Self Managed Superannuation Funds: application of the Superannuation Industry (Supervision) Act 1993 to unpaid trust distributions payable to a Self Managed Superannuation Fund.
Check to see why in-house assets can't be more than 5% of your self-managed super fund's (SMSF's) total assets.