Subject to compliance with the SIS Act and the sole purpose test, the ATO has confirmed that SMSF's can carry on a business. Although the most common businesses operated through a SMSF are either share trading or property development, other business ventures are possible. The advantages of operating a business through a SMSF include:
- Ability to use members superannuation balances to fund the business.
- Low taxes with earnings taxed at either 0%, 10% or 15%.
- Investing in businesses can produce potentially higher investment returns than passive assets.
The restrictions imposed with operating a business through a SMSF include:
- Restrictions on borrowing.
- Cannot provide loans or financial assistance to members.
- Cannot employ or remunerate members (limited exception applies).
- Cannot acquire assets from related parties.
- The trust deed needs to be updated to specifically allow the SMSF to carry on a business.
- The investment strategy needs to be updated to include the proposed business activities.
- Need to consider whether the restrictions imposed by the SIS Act make operating the business through the SMSF viable and achievable.