Tax Tip 5: Reimbursing yourself - Impossible

@Terry_w yeah the ATO finally got back to me. Not really a decision compared to individual tax rulings but more an interpretation of the act

Paragraph 17A(1)(f) of the SISA requires that no trustee receives any remuneration from the fund
or from any person for any duties or services performed by the trustee in relation to the fund.
Whilst this is a very broad provision, it does not prevent trustees from being remunerated for nontrustee services that may be provided to the fund in a separate professional capacity.
Non-trustee services, are defined in section 17B of the SISA and include where the trustee is
appropriately qualified and licensed to perform those services, the services are performed as part
of a business through which the trustee provides the same services to the public and the
remuneration is on an arm’s length basis.

Hence as long as the services (are per what industry standard pays 14%-16.5% of total short term rental per month to manage the lease), it should be acceptable to remunerate for non-trustee services.

 

I disagree. The ATO quote also does not say it is possible.

Are you qualified and licensed?

 

Whereby the services provided are of a non-professional or unlicensed nature, the remuneration provided to the trustee must not exceed remuneration paid to other businesses of equal value.

It's like a 5 page response but only a few seems to apply to my case. There is a sentence that mentions but agree it can go both ways.Yeah, i'm going to email back request more clarification as services that do not require qualifications (as in opening doors, cleaner etc). Not for myself but for my partner

 

get a PBR?

 

@Terry_w because it is super they don't do public rulings but more like interpretations of situations. I read of cases where some trustees who did handyman work on the premises of smsf Resi property were able to remunerate for non-trustee services

 

Hi Blacky, does the bank charge extra costs to set this up (to be able to use the cash deposit as security?)

 

No
If anything it is cheaper, as there is no mortgage docs.

They open up a deposit, usually called a 'security deposit' (or similar). It is in your name, but you cannot access it, until the bank releases it. It pays intererest.

About the only cost was an interest differential between what the deposit earns, and what you pay (somewhere around 1-3%).

I havent used this option in a number of years, but cant imagine the it has changed significantly.
Blacky

 

SMSFR would be what you need and ATO wont issue it. They also wont interpret law in most instances. They get loads of requests and if it doesn't pass a public interest test they just ignore the request and wont discuss it. After 28 days the assumed outcome is they said no.

If you were a real estate agent operating a business of rental management and the fund paid you a management fee of say 8% of rents that would be allowed. But not what you propose.

I question why you would do that though....Assessable income to a REA would likely have a higher marginal tax rate than a 15% deduction to a fund. Most would seek unremunerated arrangements so that this increases the fund income and a low rate applies. Your suggested arrangement is inverse and doesn't make sense and could be construed as a release of funds. For example a group of Barristers I know all run their chambers through their SMSFs and annually get rents appraised as high as possible. It acts like a contribution - No cap. Personal deduction at 49% marginal rate and assessed at 15%. They all play the same game...I started with one and now they all do it..

 

All i wanted to do was to to try out the approach with a SMSF and have some experience through short term leasing nothing more than that while getting some remuneration to do all the work associated with the leasing (not for trustee services but non-trustee services). The percentage comes from the leasing returns not the super fund. i saw my previous super dropping and decided to do something through short term leasing to get a better return.

i am 30+ years away from accessing my super so i'm not too concerned about deductions or other aspects. Anyway the ATO is OK with it - for me my view is i think it beneficial for me, maybe inverse from your point of view but if u are doing work such as cleaning the toilet, vaccumning, meeting people, doing emails etc, u are suggesting to do it for free? if it is organizing trustee related services, i agree there should be no remuneration. After 1 year - i'll just get a specialist short term leaser to do it anyway, so no big deal.

 

Am I right in saying I have been trapped by this as well? I borrowed money from a spouse to fund renovations on IP1. Had IP1 revalued and am in the middle of re-financing. If I now draw down on the available equity to pay them back, this is no longer deductible as it has already been pad for?

 

Does that spouse have an interest in the house? Why didn't you borrow from another spouse who didn't have an interest in the property as that would be considered a loan, more so if it were documented.

 

Bob dobalina is a mormon ?

 

If set up correctly this would be just refinancing one loan with another.

 

Apologies Gents, I had a brain fart on a critical piece of information. I borrowed from a sibling*.
They have no interest in the house. No i have not documented the loan in any way is this the answer?

 

And here we were thinking not of multi-generational investment or loans but of polygamous households, how wrong we can be.

 

How do you prove it is a loan?

 

The whole related party loan and SMSF issue is complex and needs specific advice. I have a few clients who are now questioning how the NSW ban on 6mth + short term lets will harm their funds (quite signifcantly as each seem to have units in blocks that seek to ban short stay). They already outsource at VERY high cost to avoid a number of concerns if they handle the management. And a SMSF cannot ever satisfy the main exemption to this new law. It may also be expected to be seen in other states and cities as has occurred overseas. This really shouldnt be underestimated as it erodes earnings.

 

Hi

I know this is an old thread but I would appreciate thoughts on my situation. I am refinancing my PPOR and wanting to buy an investment property. I can use equity to cover 105% of the IP and will look for one when I have pre-approval from the bank. The broker says the refinance will happen when the IP settles and that is when the funds will be released. He says I can use the cash in my offset for the deposit and upfront costs and when the refinance is complete, the money will go back into my offset. However, I believe that this will affect the tax deductibility of my investment loan for that portion but he says it will be tax deductible. Thoughts on this?

is there another way the bank can release the funds for upfront costs earlier than settlement of the IP?

 

You are right!

I would find another broker. Although they cannot give tax advice, they shouldn't be suggesting someone do something like this.

Yes, just borrow now so that you have the 10% deposit available to pay with borrowed funds when you need it.

 

My thoughts are he is equally able to advise on colo-rectal surgery. Should you listen ? No.....You are right to have a concern.