Peter and Rachel are married. They are registered builders and own a building partnership. They have a 2-person SMSF called the Retire Superannuation Fund. They are both its individual trustees. The SMSF’s total assets are equal to $2 million. The SMSFs assets include a residential property located in Melbourne worth $700,000. Peter and Rachel individually own 10% each of a software development company, PIL Pty Ltd (PIL). Rachel’s cousin, the cousin’s husband, and Peter’s aunt each own 20% of PIL. All five of them have a seat on the board of directors (with equal voting rights). The following events took place in the current financial year: The SMSF bought half of Peter’s aunt’s interest in PIL for $200,000, which was a price that was 10% under its market value. This did not alter the composition of the board of directors of PIL. The SMSF lent $300,000 to PIL Pty Ltd at an interest rate of 2%, which was considerably lower than commercial interest rates. This allowed PIL to make a larger profit, meaning that its shareholders could enjoy larger dividends. Rachel repainted the SMSF’s rental property, as it had not been painted in 10 years. She charged the SMSF $10,000 for this: $8,000 for labour and $2,000 for paint. Although this was approximately 15% more than a third party would charge, Rachel has found through experience that she makes a much better job of painting than most professional painters. Advise Peter and Rachel whether any of the above events have potentially breached the SISA provisions. Further, as far as transaction b) is concerned, also discuss what the legal consequences would be if the interest rate was instead 10% (considerably higher than commercial interest rates). As far as transaction b) is concerned, discuss whether the possible breaches of the legislative provisions (assuming the original 2% interest rate applied) would lead to Peter and Rachel being liable under the civil penalty provisions. For this, assume that Peter and Rachel sought professional advice on this transaction. Their accountant specialises in SMSFs and informed them that the transaction was legal. However, Rachel read on a reputable website material indicating that the accountant’s advice might not be accurate.

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If the interest rate on the loan to P IL P ty Ltd was 10 instead of 2 this would potentially breach ... View the full answer