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Finance Money

Navigating Business Ventures within a Self-Managed Super Fund

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When it comes to running a business, it makes sense that your investment strategy would be an important part of capital management. As such, entrepreneurs are the first to dedicate time and effort to figuring out the best investment plan for their ventures. As part of your research, you may come across the Self-Managed Super Fund, SMSF, a way of saving for your retirement.

Are super funds trusted excluded from carrying on a business in Australia? Here are the rules. You are not allowed to use the entirety of your SMSF to run a business, as its purpose is solely for retirement. That being said, there is a grey area when it comes to in-house assets, which can make up 5% of the total asset value. As long as those grey area investments comply with the sole purpose test, you have some room for other business activities. Yet, ideally, you would want the SMSF to carry on business activities with higher value assets.ย 

So, if you are considering combining a SMSF in crypto assets with business activities, there will be some things you need to consider and prepare. Bear in mind that you can still run a business independently from having an SMSF depending on specific criteria. The bottom line: It is imperative to tread carefully to ensure compliance with regulations and maintain the fundโ€™s adherence to the sole purpose test.ย 

What Is Allowed: Business Activities within an SMSF

Under Australian regulation, SMSFs are not banned from engaging in business activities. However, certain guidelines must be followed. Indeed, the SMSF is run for the benefits of the trustees, which lays another regulatory layer when it comes to defining business profits.ย 

This means the business activities should be pursued with the objective of generating profits, which will ultimately contribute to the growth of the SMSFโ€™s assets. Itโ€™s essential to remember that the business operations must align with the SMSFโ€™s investment strategy. So, you want to remain consistent with the sole purpose of providing retirement benefits to all the trustees.

Avoiding Sole Purpose Test Breach

The sole purpose test dictates that an SMSF must meet the sole purpose of providing retirement benefits to its members and beneficiaries. Essentially, engaging in business activities should not result in a breach of this fundamental test.ย 

In order to stay compliant, the trustees need to ensure the business operations donโ€™t overshadow the primary purpose of accumulating retirement savings. This can be a delicate balancing act, and it is an area where you want to seek legal and financial assistance from professionals to ensure full compliance.ย 

Additionally, business activities should also be aligned with the investment strategy that SMSF adheres to. As such, there is some room for business activities, but this is strictly limited to:

  • Business that is operated for the sole purpose of securing benefits for the trusteesโ€™ retirement
  • Business permitted pursuant to the trust deed.ย 

Bear in mind that, even if all trust members agree to run a business within the SMSF, the Australian Taxation Office still regulates which activities are permitted within a super fund. However, the ATO does not prohibit an SMSF from carrying on a business, as long as it aligns with the existing regulation. So, the short answer is: Yes, business ventures and SMSFs can go hand-in-hand. But, for your peace of mind, you want to explore these options with a specialist SMSF lawyer first.

 

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