#9835
Awan Hammad
Participant

    Hi Antony

    Thanks, there are several issues to consider.

    Firstly a SMSF can invest in a company or trust that is not considered to be a related party. If the company / trust was considered a related party then the in-house asset rules (& the 5% limit) would apply (unless it met the requirements of being a 13.22C & D SIS Regulations “ungeared” entity).

    Normally an entity is considered an unrelated entity when the Fund owns or controls no more than 50% of the shares or units.

    As a result a SMSF can invest in up to 50% of the shares or units in an entity & this by itself will not make it a related party.

    An article that discusses these rules can be found at:

    Even if the company was considered to be a related party then the Fund could also invest in the company (or trust) on the basis that it is an investment in an “ungeared” entity as per SIS Regulations 13.22C & D. (You would need to ensure compliance with all the requirements)

    SIS Regulation 13.22D does require that an investment in a related entity fails the “ungeared” entity rules if:

    “the company, or a trustee of the unit trust, conducts a business”.

    This means that if the company was considered to be a related party to the SMSF the SMSF would need to be careful to ensure that the property development was not considered to be the running of a business. Arguably a one off development of a property by a company would not be considered to be the running of a business however it will depend on the exact facts of the arrangement.

    Re other SIS sections you would also need to consider:

    Section 62 – check that investment strategy allows investment in the company.

    Section 109 – check all transactions are done on an arm’s length basis .

    Thanks

    THE AUDITORS INSTITUTE

    LOGIN

    New to this site? Sign Up

    We have upgraded our website for a better experience.

    Because of this upgrade, all members need to change their password to access their account by clicking the Forgot Password button below.

    Thank you and we look forward to your continued support!