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Self Managed Super Fund (SMSF) Article
SMSFs and Taxi Licenses

By Tony Negline.

This article may be out of date.

27th June 2007

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Taxi licenses are often considered good investments for various reasons and as a result some Self Managed Super Funds investors think they might make a worthwhile investment for their fund.  It’s certainly true that over the years, taxi licenses have appreciated quite well.

Before a SMSF actually invests in one of these products it’s necessary to consider a range of pertinent issues:

Super funds can acquire a range of assets from members, relatives and controlled entities.  These include securities listed on most stock exchanges and business real property.  Interestingly Victorian taxi licenses must be traded on the Bendigo Stock Exchange and as a result these licenses could be transferred into a super fund.

If a super fund gets past these rules, it also has to make sure that it satisfies the sole purpose test.  This test does not allow super funds to run businesses nor does it allow a trustee to be employed by the super fund.

Typically there are two ways that taxi licenses are used.  Firstly the license holder may decide to use their own car and lease it to a range of taxi-drivers.  Secondly, the license holder may lease the license to someone else who then uses the license to run their taxi business.

Both these operating styles represent potential problems for SMSFs.  Under the first method a super fund could be seen to be running a business.  Even if the fund is deemed not be running a business, most likely, none of the taxi-drivers could be SMSF members or their relatives.  Under the second method, the lease couldn’t be with a SMSF related party.

Further most Australian governments severely restrict the number of taxi licenses thereby making the asset very scarce.  This restricted supply helps to inflate the market price of the asset.

One the risks of holding an asset of this sort is that if a government decided to issue many more taxi licenses, the market price of all existing licenses would fall.  A difficult problem for all super funds holding this type of license is to determine a suitably realistic valuation for the asset.  That sale price might only have a very short shelf-life.

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This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.

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