SMSF - Do's and Dont's..
- Thread starter duncan_m
- Start date
Hi
I will keep this post general and deliberately basic, so, please bare with me if I do not go into as much detail as you might like....
A superannuation fund must invest for the future. That is, it should not allow the members to benefit from the fund or its assets in any way. Therefore, a couple of examples might be that the fund cannot buy artwork and hang them in your living room; or, buy a golf membership and allow you to play golf using that membership.
A superannuation fund cannot borrow money...at all.
A superannuation fund must have an investment strategy of how the funds under management will be invested. Then, the fund should actually invest in accordance with this strategy.
A superannuation fund cannot pay a member or trustee for managing the assets of the fund or for any other creative reason.
A superannuation fund cannot operate a business of its own.
Other than that, a super fund obviously has to lodge tax returns every year and have the financial statements audited every year.
That is about it. The tax office have a couple of handy booklets that are worth reading. Try here:
http://www.ato.gov.au/super/pathway.asp?pc=001/007/122&mfp=001/007&mnu=2213#001_007_122
Have fun
Dale
I will keep this post general and deliberately basic, so, please bare with me if I do not go into as much detail as you might like....
A superannuation fund must invest for the future. That is, it should not allow the members to benefit from the fund or its assets in any way. Therefore, a couple of examples might be that the fund cannot buy artwork and hang them in your living room; or, buy a golf membership and allow you to play golf using that membership.
A superannuation fund cannot borrow money...at all.
A superannuation fund must have an investment strategy of how the funds under management will be invested. Then, the fund should actually invest in accordance with this strategy.
A superannuation fund cannot pay a member or trustee for managing the assets of the fund or for any other creative reason.
A superannuation fund cannot operate a business of its own.
Other than that, a super fund obviously has to lodge tax returns every year and have the financial statements audited every year.
That is about it. The tax office have a couple of handy booklets that are worth reading. Try here:
http://www.ato.gov.au/super/pathway.asp?pc=001/007/122&mfp=001/007&mnu=2213#001_007_122
Have fun
Dale
Hiya Andy
I must admit that I do not know as much on this topic as I do on some others...but, since the trust is not borrowing money then the superfund can invest in the trust at face value.
However, I see the potential problem in that since abt 1999 superannuation funds have not been allowed to invest more than abt 5% of their assets into a related party.
For this to work, there would need to be very careful planning and I agree with your thoughts that they are pushing the limits.
Dale
I must admit that I do not know as much on this topic as I do on some others...but, since the trust is not borrowing money then the superfund can invest in the trust at face value.
However, I see the potential problem in that since abt 1999 superannuation funds have not been allowed to invest more than abt 5% of their assets into a related party.
For this to work, there would need to be very careful planning and I agree with your thoughts that they are pushing the limits.
Dale
Andrew said:
With respect to SMSF and the carrying on of a business the NTLG Superannuation Subcommittee at its meeting on 8th February 2006 had this to say.
4.8 Self managed superannuation funds that carry on a business
Concern was expressed over a number of Tax Office publications that appear to have taken the view that an SMSF would breach the sole purpose test where it carries on a business. These include the publications DIY Super – it’s your money ... but not yet and Self managed superannuation funds – roles and responsibilities of trustees and Self managed superannuation funds – roles and responsibilities of approved auditors.
This issue is increasingly important as the courts and AAT have shown an increased willingness to treat a taxpayer’s activities as amounting to carrying on a business, including in the cases of share traders (such as in Shields v DFCT 99ATC 2037) and in the case of ‘tax effective’ investments that receive a product ruling from the Commissioner in which the Commissioner accepts that investors are carrying on a business.
Further clarification was requested from the Tax Office about whether a superannuation fund can carry on any type of business and satisfy the sole purpose test.
Tax Office response: In the Minutes of the previous meeting of 26 October 2005 the Tax Office stated:
‘The Tax Office indicated that there is nothing in the legislation to prevent it. However, there are potentially a number of issues in carrying on a business that might lead to contraventions of the SIS Act and Regulations (such as the sole purpose test, or the borrowing of money). As each case must be considered on its own merits, the Tax Office cannot give a more definitive answer.’
Recently the Tax Office’s Self managed superannuation funds – roles and responsibilities of trustees booklet was reviewed and amended to state:
‘A possible indication that the sole purpose test has been contravened is where a fund is running a business as part of its investment strategy. If a superannuation fund is conducting a business, it may not be administered for the sole purpose of providing benefits for the members and beneficiaries of the fund.’
In the meantime, the Tax Office’s Self managed superannuation funds – roles and responsibilities of approved auditors booklet as well as the DIY Super – it’s your money...but not yet booklet are being reviewed to ensure consistency.
4.8 Self managed superannuation funds that carry on a business
Concern was expressed over a number of Tax Office publications that appear to have taken the view that an SMSF would breach the sole purpose test where it carries on a business. These include the publications DIY Super – it’s your money ... but not yet and Self managed superannuation funds – roles and responsibilities of trustees and Self managed superannuation funds – roles and responsibilities of approved auditors.
This issue is increasingly important as the courts and AAT have shown an increased willingness to treat a taxpayer’s activities as amounting to carrying on a business, including in the cases of share traders (such as in Shields v DFCT 99ATC 2037) and in the case of ‘tax effective’ investments that receive a product ruling from the Commissioner in which the Commissioner accepts that investors are carrying on a business.
Further clarification was requested from the Tax Office about whether a superannuation fund can carry on any type of business and satisfy the sole purpose test.
Tax Office response: In the Minutes of the previous meeting of 26 October 2005 the Tax Office stated:
‘The Tax Office indicated that there is nothing in the legislation to prevent it. However, there are potentially a number of issues in carrying on a business that might lead to contraventions of the SIS Act and Regulations (such as the sole purpose test, or the borrowing of money). As each case must be considered on its own merits, the Tax Office cannot give a more definitive answer.’
Recently the Tax Office’s Self managed superannuation funds – roles and responsibilities of trustees booklet was reviewed and amended to state:
‘A possible indication that the sole purpose test has been contravened is where a fund is running a business as part of its investment strategy. If a superannuation fund is conducting a business, it may not be administered for the sole purpose of providing benefits for the members and beneficiaries of the fund.’
In the meantime, the Tax Office’s Self managed superannuation funds – roles and responsibilities of approved auditors booklet as well as the DIY Super – it’s your money...but not yet booklet are being reviewed to ensure consistency.
