I get a lot of emails from SMSF Trustees who have read my article What can my SMSF invest in? asking about a best practice process for deciding on and implementing a new investment with their SMSF.
So here is a basic checklist you should tick off for every investment just to avoid problems.
- Is the investment permitted by the SMSF trust deed?
- Is the investment in accordance with the requirements of the fund’s SMSF investment strategy?
- Is the purpose of making the investment to further the retirement benefits of the members of the fund ie. Does it satisfy the sole purpose test?
- Ensure the investment doesn’t provide financial assistance or a loan to the fund’s members and their relatives.
- Ensure the investment would not cause the SMSF to breach the 5% threshold for in-house assets.
- If you as Trustee are not dealing with the other party of an investment on an Non-arm’s length income then ensure the deal isn’t more favourable to the other party.
- Is the investment being acquired from a non-related party? Assets may only be acquired from related parties in limited circumstances. See this video for a short explanation
But what if you are not sure an investment ticks all the boxes?
While you should make your best effort to ensure that the investments are compliant with the legislation, it can often be difficult to tell whether a particular investment would be compliant or not.
For example, an SMSF trustee would be able to acquire a property from a member if that property was deemed to be business real property (BRP) but while for most BRP it is obvious that it satisfies the definition like a stand alone wharehouse, for other properties it is far from clear such as a retail shop with 2 residential units above it.
In this case, as trustee, you could either decide not to proceed with the acquisition or else they could seek further guidance. While trustees always has the option of seeking legal advice, they also have the ability to go straight to the ATO to seek their opinion before entering the transaction.
This guidance can be sought by using the “Request for self-managed superannuation fund specific advice available” on the ATO website.
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
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