Retirement
Can your SMSF buy your business?
If you’re the sole director in ownership of your business, you might be tempted to have your SMSF purchase it from yourself. Here’s what you need to know.
Can your SMSF buy your business?
If you’re the sole director in ownership of your business, you might be tempted to have your SMSF purchase it from yourself. Here’s what you need to know.
This question comes up regularly so let’s split it into two parts before answering it.
Transfer of the property
At first glance, the SMSF would not be able to acquire the property from the member because they are a related party of the SMSF. However, section 66 of the SIS Act does contain a relevant exception to the general prohibition on related party acquisition.
The exception allows the fund to buy what is called ‘business real property’ provided it is transferred at market value. Figuring out whether the property constitutes ‘business real property’ can be straightforward or a little more complex, depending on the type and use of the property, so it’s always best to speak to a professional before proceeding. Basically, it’s property which is wholly and solely used for business purposes.
Both the ATO and the local Duties Office will generally require a valuation to be presented as evidence that the property is being acquired at market value. Ideally, this should be obtained from an independent, qualified valuer to avoid any complications.
Provided the above requirements are met, the SMSF would be able to acquire the property from the member by cash (including borrowing) and/or in-specie contribution. In some states, the transaction is even eligible for concessional stamp duty (e.g. NSW, Victoria or WA).
Transfer of the shares in the private company
Here again, the prohibition would apply but another exception is available. Generally, an SMSF can acquire from a related party an asset even if the investment would be an in-house asset of the SMSF.
The asset must be acquired at market value, which must be less than 5 per cent of the total market value of the fund (this is colloquially called the ‘5 per cent rule’).
As the acquisition of shares in a related private company (i.e. unlisted shares) falls within the definition of an in-house asset, the SMSF is able to buy the unlisted shares from the member (keeping the 5 per cent rule in mind).
However, this investment comes with ongoing obligations as the trustee needs to ensure the market value of the unlisted shares (and any other in-house assets of the SMSF) is carefully monitored each year.
Should the value of the SMSF’s in-house assets go over 5 per cent of the overall asset value of the SMSF, the trustee must either sell some of the shares, sell some other in-house assets or otherwise increase the total value of the assets of the fund to get back below the threshold before the end of the financial year.
Other points to remember:
• The investment must be conducted at arms length to comply with s109 of the SIS Act and avoid non-arms length income consequences;
• The investment strategy of the SMSF must be considered prior to entering into the transaction; and
• The ‘sole purpose’ test must be taken into account.
Michael Hallinan, Townsends Business & Corporate Lawyers
Self managed super fund
Superannuation guarantee to be paid on government paid parental leave, says ASFA
The Association of Superannuation Funds of Australia (ASFA) has hailed the government's decision to include Superannuation Guarantee payments with its Paid Parental Leave policy as a critical step ...Read more
Self managed super fund
SMSF experts advise against hasty reactions to potential super tax changes
As the Australian Government proposes a new tax measure on superannuation earnings for balances exceeding $3 million, experts from the self-managed super funds (SMSF) sector are urging members not to ...Read more
Self managed super fund
Federal government announces changes to superannuation contribution caps
The Federal Government has announced changes to the superannuation contribution caps, impacting self-managed super funds (SMSFs) and their members from 1 July 2024. Read more
Self managed super fund
SMSF Association calls for joint effort to tackle early super access
The SMSF Association is calling on a collaborative approach including the Government, the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), and the ...Read more
Self managed super fund
Rest Super members file class action over alleged insurance premium deductions
Shine Lawyers has initiated a class action lawsuit against Rest Superannuation (Rest), alleging the unlawful deduction of income protection insurance premiums from members' superannuation accounts. Read more
Self managed super fund
Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms
In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds ...Read more
Self managed super fund
Is an SMSF right for you?
When it comes to planning for retirement, one of the most significant decisions Australians have to make is how to manage their superannuation. Read more
Self managed super fund
SMSF growth continues after pandemic peak
The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX). Read more
Self managed super fund
Superannuation guarantee to be paid on government paid parental leave, says ASFA
The Association of Superannuation Funds of Australia (ASFA) has hailed the government's decision to include Superannuation Guarantee payments with its Paid Parental Leave policy as a critical step ...Read more
Self managed super fund
SMSF experts advise against hasty reactions to potential super tax changes
As the Australian Government proposes a new tax measure on superannuation earnings for balances exceeding $3 million, experts from the self-managed super funds (SMSF) sector are urging members not to ...Read more
Self managed super fund
Federal government announces changes to superannuation contribution caps
The Federal Government has announced changes to the superannuation contribution caps, impacting self-managed super funds (SMSFs) and their members from 1 July 2024. Read more
Self managed super fund
SMSF Association calls for joint effort to tackle early super access
The SMSF Association is calling on a collaborative approach including the Government, the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), and the ...Read more
Self managed super fund
Rest Super members file class action over alleged insurance premium deductions
Shine Lawyers has initiated a class action lawsuit against Rest Superannuation (Rest), alleging the unlawful deduction of income protection insurance premiums from members' superannuation accounts. Read more
Self managed super fund
Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms
In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds ...Read more
Self managed super fund
Is an SMSF right for you?
When it comes to planning for retirement, one of the most significant decisions Australians have to make is how to manage their superannuation. Read more
Self managed super fund
SMSF growth continues after pandemic peak
The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX). Read more