The taxpayer wrote off the amount that was owed, Mr Burgess said, and then tried to claim the amount written off as a tax deduction.

The deduction was denied because the tax department said it was a loan rather than an unpaid present entitlement.

“This was not an SMSF case … but I think it’s a timely reminder to SMSFs that own units in related trusts. They need to ensure the SMSF is receiving distributions owed to the SMSF in a timely manner,” Mr Burgess said.

The definition of "loan" in the SIS Act is “very broad” and includes any form of financial accommodation.

“So it’s open to the ATO commissioner, where there are unpaid distribution for an extended period of time, to call that a loan,” Mr Burgess said.

This has implications for SMSFs that may invest in related trusts which comply with regulation 13.22C, with one of the requirements of those trusts being they cannot have any borrowings, he said.

“So this would result in those units being classified as the in-house assets of the SMSF, which can lead to breach situations and a $10,200 admin penalty under the new penalty regime,” Mr Burgess said.

“The other issue here is once the related trust has breached the requirement of SIS regulation 13.22C, it can never be a 13.22C trust again, meaning the trust would need to be unwound,” he added.

Peter Burgess will be speaking at the 8th Annual SMSF Adviser Strategy Day. For more information.