Television Education Network’s 13th Annual SMSF Conference - Online
TEN
SMSFs (self managed superannuation funds) have been carrying on business and business like activities ever since SMSFs came into existence. Yet despite that there is still a common concern that such activities will cause the SMSF to become non-compliant, or subject to penalties, on the basis that such activities are prohibited.
There is no express prohibition on SMSFs undertaking a business or business like activities. Rather, the question is whether such activities cause the SMSF to breach the provisions of the Superannuation Industry (Supervision) Act 1993 (SIS Act) or the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) or result in adverse tax consequences under the Income Tax Assessment Act 1997 (ITAA97) or the Income Tax Assessment Act 1936 (ITAA36).
In this paper I have firstly examined whether an SMSF can carry on a business. Secondly, I have reviewed the provisions of the SIS Act and SIS Regs, and the tax acts, that must be considered when an SMSF carries on a business or business like activities. Thirdly, I have reviewed various structures under which an SMSF can carry out a business.
In my experience the most common business or business like activities undertaken by an SMSF is property development. Therefore, this paper particularly concentrates on property development.
Another issue, which I have not dealt with in this paper but must be considered, is how the business will be funded (whether by the SMSF or an entity that the SMSF has invested in). Possible funding sources include:
existing cash from the SMSF;
cash from the members by way of contributions (subject to the contributions caps);
borrowings (consider whether borrowings are permitted and what restrictions apply, eg LRBAs);
non-SMSFs (provided they can invest and what restrictions apply).
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