SMSF carrying on a business
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.
"You’d be stupid not to try to cut your tax bill and those that don’t are stupid in business"
- Bono: U2