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Can my SMSF invest in a business?

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I have an opportunity to invest in a business and I want to use my DIY super fund to do this. Now I will own the business with a partner and I will have to put $20,000 into it to get it started but I shouldn’t have to add any more money.

It will return a dividend each year but are there any rules stopping me from doing this? I would rather invest in a business that I have an interest in than trusting some of these public company CEOs or fund managers.

The rule that you have to be aware of covers in-house assets. If someone who is in the fund owns more than 50 per cent of the business or asset, then the in-house asset rule kicks in. If this is the case, then your super is limited to investing five per cent maximum in the asset or business. If you will own more than 50 per cent of this business, then you will have to compare the $20,000 you plan to invest with how much is in the fund. If your fund has $500,000 in it, then $20,000 would be only four per cent of the total funds in the super fund and that means you should be okay with the in-house asset rule.

As the person I presume who runs the fund, you also have to make sure you have respected the sole purpose test that goes with DIY funds but many people do forget about it. The sole purpose test says that super funds have to invest its monies for the express purpose of providing retirement benefits for members and their dependents or death benefits for any such dependents. It could also be for those struck down by temporary or permanent injury. It has to be provable that your investment has been made for the sole purpose of providing benefits for retirement in particular.

I think there has to be a good case for the in-house investment compared to alternative investments and the personal involvement of a member of the fund ideally should be zero or negligible.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Wednesday, March 09, 2011

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