Can an SMSF Purchase a Business?
Yes, an SMSF can purchase a business. However, there are several rules and regulations that must be followed. The ATO states that SMSFs are allowed to invest in business real property (BRP) or business assets under certain circumstances. The acquisition must be for the sole purpose of providing retirement benefits for members, and the investment must comply with the fund’s investment strategy and trust deed. As with anything SMSF related it is important to contact an SMSF professional or adviser prior to making any decisions.
Risks and Considerations
Purchasing a business through an SMSF can be risky, and it’s essential to understand the potential risks and consider these before proceeding. For example, purchasing a business can be a complex transaction that requires significant due diligence, and there is always a risk that the investment may not perform as expected. Additionally, investing in a business can tie up a significant portion of an SMSF’s assets and limit diversification opportunities.
Regulatory Considerations
SMSFs that invest in businesses must also comply with specific regulatory requirements. For example, the investment must be made on an arm’s length basis, which means that the investment must be made at a fair and reasonable price. SMSFs must also ensure that the business does not provide any financial assistance to members, and the investment must be made in accordance with the fund’s investment strategy and trust deed.
The ATO states that SMSFs that purchase businesses must ensure that the investment is consistent with the fund’s investment strategy, and trustees must regularly review the investment to ensure ongoing compliance with these requirements.
While SMSFs can purchase businesses, it’s essential to understand the regulatory requirements and potential risks involved. Investors should seek professional advice before proceeding with such an investment, and ensure compliance with all regulatory obligations. By doing so, investors can potentially realize the benefits of investing in a business while safeguarding their retirement savings.
References:
Australian Taxation Office. (2022). Investing in business. Retrieved from https://www.ato.gov.au/Super/Self-managed-super-funds/Investing/Investing-in-business/
Australian Securities and Investments Commission. (2022). Self-managed super funds. Retrieved from https://www.moneysmart.gov.au/superannuation-and-retirement/self-managed-super-fund-smsf
Hill, C. (2022). Can an SMSF buy a business? Retrieved from https://www.smsfwarehouse.com.au/can-an-smsf-buy-a-business/
