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Self Managed Super Fund (SMSF) Article
Look before you leap into a business in your Self Managed Super Fund

By Tony Negline.

This article may be out of date.

9th June 2010

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I'm often asked if a super fund can operate a business.

There are many reasons why someone might want to run a business via their super fund.  Some typical, often inter-related, reasons are:

Since the current super regulatory laws were first enacted over 17 years ago, the super industry has had various views about whether a super fund can run a business.  Overall the answer was initially yes, running a business is probably okay.  In the late 1990s, it changed to no.  The current answer is, it depends.

This change in view is not because new rules have been introduced.  The fact is, over time our understanding and use of all laws change.

Recently the ATO released a document that discusses the issue of a Self Managed Super Fund running a business.

The ATO say that when they come across any Self Managed Super Fund running a business they initially look to see that the sole purpose test hasn't been breached.

All super funds must satisfy this test at all times.  As the test's name implies it requires exclusivity of purpose which the ATO says is much higher than a super fund being maintained for a dominant or principal purpose.

The situations which the ATO would look closely at are:

The ATO might also closely examine the following other important areas of the law:

A super fund's external auditor should probably examine these issues in great detail as well.

There is of course the issue of a super fund operating a share trading business or simply buying and selling shares.  To solve this puzzle we need to determine if a share trading business is being conducted.  This is not a straight forward question to answer so we'll deal with this in another article.

Anyone contemplating running a business partly or wholly via a Self Managed Super Fund needs to be aware that special tax rules may apply – called the non-arm's length income provisions – which might see the income earned on the super fund's investment taxed at the highest individual's marginal tax rate, 46.5%.

Finally it's worth pointing out that the Cooper Super System Review's discussion paper on possible changes to Self Managed Super Funds released in April did not mention if SMSFs should be banned from running a business.  It remains to be seen if the review panel's final document contains this issue and whether the Government take up this recommendation.

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