When is an in-house asset not an in-house asset? When the ATO says the magic words!

18 November 2009

The ATO has the power to deem an in-house asset as not being an in-house asset.  This power is conferred by s71(1)(e) of the SIS Act.  The ATO has recently released a statement of principles as to when the ATO will exercise this magic power to determine that an in-house asset is not an in-house asset.

The principles are set out in Practice Statement Law Administration PS LA 2009/8.

Some of the more significant points of the Practice Statement are:

  • the discretion is exercised on a case by case basis
  • the SMSF must request the exercise of the discretion
  • the discretion will only be exercised if the circumstances are unusual or out of the ordinary AND the exercise of the discretion will not undermine the purpose of the in-house asset rules
  • the following circumstances would generally not pass muster for the exercise of the discretion:
  • fluctuations in economic conditions
  • the trustee not being aware of the in-house asset rules
  • the trustee relying on incorrect professional advice
  • the in-house asset providing a significant benefit to the SMSF.


In particular the ATO will not generally use the discretion as a means of correcting a SMSF’s failure to comply with in-house asset transitional rules or the failure to comply with conditions attaching to an in-house assets exemption.

If the discretion is exercised, it will only apply to the particular SMSF in relation to that fund’s assets.  Therefore a favourable exercise of the discretion cannot be used as a precedent for another fund.

The discretion will generally be exercised on a retrospective basis and may apply only on such conditions as the ATO determines.

In summary, while the ATO does have the power to deem an in-house asset not be an in-house asset, the “unusual or out of the ordinary” requirement will generally exclude most SMSFs and if not, the “not undermining the policy purpose” will exclude the others.

It is far better not to be in a position where an SMSF has to rely on the grace and favour of the ATO.

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