Tax Planning Strategy 184 | SMSFs: Investing in Non-Controlled Entities

Tax planning strategy 184

This strategy involves a SMSF investing in non-controlled unit trusts or companies. As the entities are non-controlled entities they can operate businesses, be geared, and invest without breaching the SIS legislation. This structure allows multiple unrelated SMSFs to invest in these entities and have the trust distributions, dividends, and capital gains taxed at the SMSF concessional tax rates (i.e. between 0 – 15%). The tax savings can be over $50,000 pa.

The key requirement is that the SMSF must not control the entity. This requires ownership of less than 50% of the entity, and ideally, less than 33%. In addition, the trustees/directors of the fund must ensure that the other investors in the non-controlled entities are not members of the fund, an employer-sponsor of the fund, or an associate of either the member or employor-sponsor.  

Expert advice is required to ensure that the SMSF investments meet the SIS Act requirements for non-controlled unit trusts or companies. Breaches of the SIS Act are subject to minimum trustee penalties of $10,800 per breach.