If you trade many stocks eg. daytrading via a SMSF, does the Audit fees become completely ridiculous because they will need to audit each trade? I believe auditors charge you depending on how many transactions your SMSF does.
SMSF for trading stocks
- Thread starter thesuperman
- Start date
Operating a business (such as trading shares) is generally not permitted within a super fund.
To clarify: buying and selling shares is not a problem, it is only when the trading is a at a level where it is considered a business (see ATO ruling for guidelines on what constitutes a business). Any serious daytrading would probably be deemed a business. But please get your own advice.
To clarify: buying and selling shares is not a problem, it is only when the trading is a at a level where it is considered a business (see ATO ruling for guidelines on what constitutes a business). Any serious daytrading would probably be deemed a business. But please get your own advice.
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Hi there, audits are more competitive these days, its no longer based on number of trades, you can find auditors who charge fixed fee. I'm an auditor and charged based on asset class - if the funds holds property its a different fee than shares. You should be bale to get a fixed fee audit done for $400.
Cheers, Ivan
You are absolutely able to trade shares in an SMSF (unless you specifically exclude it within the constitution).
Trust deed. Constitutions are governing rules of companies/
Australian Super has a Members direct option.
"You can invest in stocks in the S&P/ASX 300 Index, Exchange Traded Funds (ETFs) and term deposits ? all from online platform. In fact, the Member Direct option offers many of the features of a self managed super fund at a fraction of the cost."
There are some conditions.
"You can invest in stocks in the S&P/ASX 300 Index, Exchange Traded Funds (ETFs) and term deposits ? all from online platform. In fact, the Member Direct option offers many of the features of a self managed super fund at a fraction of the cost."
There are some conditions.
Rubbish. A SMSF can't operate a business. A SMSF might be able to invest in shares subject to the investment strategy. Share trading within an investment strategy is normally ok. However operating a reading business would expose the fund to a tax issue. Remember that the SMSF laws always come back to tax law
Really - So can you please provide a specific reference in law that prohibits an SMSF carrying on a business? I will answer for you because there isn't any.
However, I would certainly agree that it would be very unrealistic to try running a normal business in an SMSF (and I am not suggesting this) because of the limitations I alluded to in my response - namely:
A) it being allowed under the trust deed , and
B) the operation is for the sole purpose of providing retirement (or death) benefits for members.
As indicated the tax offices' interpretation of point B) would be a crucial limitation - i.e. is the predominant purpose the carrying on of the business, instead of providing retirement benefits. This would almost certainly rule out most business activities.
But there are many grey areas. For example lets say your SMSF owned a block of land and (after confirming that the trust deed and investment strategy allows) decided to build a house for rental. Even though this is a one off transaction it could be classed as an enterprise yet I would suggest could be perfectly acceptable and would satisfy the sole purpose test. (Subject to the normal arms length considerations, no borrowings, etc.)
Or lets take share trading. If done often enough it could be classified as a business. At what point would the commissioner consider that the fund has crossed the line and breached the sole purpose test if at all?
So just to reiterate IMO it is the trust deed and the sole purpose test (along with the investment strategy) that provide the restriction. As always get professional guidance.
Even the ATO acknowledges that there is no specific prohibition from an SMSF running a business
https://www.ato.gov.au/super/self-managed-super-funds/investing/carrying-on-a-business-in-an-smsf/
However as Gary has said other rules may be breached by doing so. This is where advice is critical.
DBA lawyers had a good article on this issue
One question is then whether it is possible for an SMSF running a business to comply with the sole purpose test. At the risk of over-simplifying, the 2008 High Court decision of Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 considered whether a company that ran a business met the charity equivalent of the sole purpose test. The company ran a funeral business charging clients a commercial margin of profit. Profits were then donated to another entity that clearly was a charity. Effectively this raised the question of whether the ends can justify the means. Four out of five judges answered in the affirmative, holding that the company’s activities were charitable because they were carried out in furtherance of a charitable purpose.
Although not expressly a superannuation case, Word does have implications for superannuation funds. Namely, it lends support for the view that superannuation funds running a business meet the sole purpose test if the business profits are retained in the fund to pay for things like retirement benefits.
https://www.ato.gov.au/super/self-managed-super-funds/investing/carrying-on-a-business-in-an-smsf/
However as Gary has said other rules may be breached by doing so. This is where advice is critical.
DBA lawyers had a good article on this issue
One question is then whether it is possible for an SMSF running a business to comply with the sole purpose test. At the risk of over-simplifying, the 2008 High Court decision of Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204 considered whether a company that ran a business met the charity equivalent of the sole purpose test. The company ran a funeral business charging clients a commercial margin of profit. Profits were then donated to another entity that clearly was a charity. Effectively this raised the question of whether the ends can justify the means. Four out of five judges answered in the affirmative, holding that the company’s activities were charitable because they were carried out in furtherance of a charitable purpose.
Although not expressly a superannuation case, Word does have implications for superannuation funds. Namely, it lends support for the view that superannuation funds running a business meet the sole purpose test if the business profits are retained in the fund to pay for things like retirement benefits.
As inferred by Gary above a trustee has no right, in law or in rules of equity, to operate a business unless expressly given the powers in the trust deed. I am not sure how many SMSF trust deeds would allow this but amendments may be possible. Running a business without permission would be a breach of trust.
I will never commit to a written opinion that ANY SMSF can operate a business or operate a venture which has business like operations. Accordingly in general terms I always advise a SMSF cannot operate a business. I stand by that opinion until I give a contrary opinion to a client.
In the example of share trading there are several instances where the behaviour of the trustee/s may be a cause for concern and result in a adverse audit opinion or even a caution within a management letter to the trustee.
- The activity is conducted by one trustee (ie husband) and the other is uninvolved. Trust law requires that trustees act unanimously and decisions are made by "the trustees". This includes investment decisions. The ATO Trustee Declaration now includes caution about this issue and the loss of prudential safeguards that occurs with a SMSF. ie hubby can blow wife's $ and there is no recourse. "Equally involved" is the ATO test that reflects trust law.
- Activities that are unsupported by an investment strategy. For example if the strategy fails to address short term speculative risks
- Absence of a Risk Management Strategy in some cirumstances (eg where a hybrid / derivative / futures etc is used
- Exposure to commodity / currency etc where a RMS is not prepared that specifically addresses the precise trades taken.
- Where BOTH/All trustees lack understanding of the IS / RMS.
- Short contracts
- Use of futures
- Use of leverage
- In circumstances where the quantity of trades approaches the volume that may be indicative of the operation of share trading business.
In such cases in the past when I was also a SMSF auditor I have been known to qualify the audit opinion and report the matter for the ATO to determine later (rare cases). The role of SMSF auditor is not to determine a conclusive opinion. It is to report an opinion and facts to the Commissioner who can then form his own view.
All of your concerns could relate to any investment. the query was related to share trading, not futures or leverage or shorting stocks. Most of your answer is irrelevant.
The fact is there is no specific exemption stopping an SMSF engaging in share trading as a business, or in fact operating any other business. As someone has already pointed out, the major hurdle to overcome is the 'sole purpose' test, and the limitations placed upon the SMSF by the trust deed.
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Drinking and writing on Somersoft is not the greatest idea.
I agree with GaryT.
When clients ask me about share trading and SMSF's. I usually say it is ok but I would prefer that they show it on Capital account and not show it as a business.
For the Audit I do not charge clients per transaction. My fees(for individual clients) are based on investments at the end of the year.
An auditor would not need to check all share transactions. They can do it on a test bases.
That's an offensive comment.
Trading shares in a SMSF is fine. Capital v's revenue account is borne by circumstance not choice. Conducting a business is a substantially different issue and presented by facts. The question posed wasn't about trading but a share trading business.
The frequency and professional manner of operation incl volumes, frequency and the manner in which the operation are conducted would be different in each and every circumstance. This is borne out in Dan's previous comment where he seeks to limit to his circumstances. The issues I refer to are such examples of where share trading may become a concern. Or not. Its not irrelevant. Those are the matters that differentiate. Some traders do these things. Those that don't its no issue.
I and most other accountants probably wouldn't charge per transaction. Some administration firms do and that can be a sting where they make $. Often statements outline total buy / sells and profits and losses so individual entries aren't entered. Every client records are case by case. In many instances if those records are comprehensive the auditor may rely on them and further testing etc not a concern.
If I had a choice between a broker account with decent summary reporting v's trade by trade contracts the summary report option should always be cheaper and easier.
Trading shares in a SMSF is fine. Capital v's revenue account is borne by circumstance not choice. Conducting a business is a substantially different issue and presented by facts. The question posed wasn't about trading but a share trading business.
The frequency and professional manner of operation incl volumes, frequency and the manner in which the operation are conducted would be different in each and every circumstance. This is borne out in Dan's previous comment where he seeks to limit to his circumstances. The issues I refer to are such examples of where share trading may become a concern. Or not. Its not irrelevant. Those are the matters that differentiate. Some traders do these things. Those that don't its no issue.
I and most other accountants probably wouldn't charge per transaction. Some administration firms do and that can be a sting where they make $. Often statements outline total buy / sells and profits and losses so individual entries aren't entered. Every client records are case by case. In many instances if those records are comprehensive the auditor may rely on them and further testing etc not a concern.
If I had a choice between a broker account with decent summary reporting v's trade by trade contracts the summary report option should always be cheaper and easier.
Is it really necessary to start your post with this?
I am sorry if you where offended.
I am not GaryT but I was not happy with your comments towards GaryT specially when he was correct.
I thought your words were demeaning and did not make a lot of sense.
Yes it was an offensive comment but so was yours. So its OK to be offended and also OK to give offence? At least "Property Hoarde" was big enough to apologise.
So you stand by your own opinion until you decide your opinion is wrong.
It's is OK for you to give your opinion but as a respected responder you need to provide some legislative base and case law to support that contention. Not everything is black or white.
I may be quite happy to be told my opinion is "rubbish" if an alternate view is supported with facts that clearly shows my statement was not factual. I think we are waiting to receive same?
It is the blanket statements NEVER that are the concern. I haven't had clients operate a business through an SMSF but question is what is a business. Saw a structure where an SMSF was holding a patent and license agreement and receiving licensing fees from the patent for commercial purposes. Doesn't Walt Disney do the same for its characters ? Large companies pay licensing fees all the time. Business ? Private Ruling suggested it was fine. So blanket statements do need caveats.
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